Third quarter 2020 net revenues were $715 million, an increase of $83 million, or 13%, from $632 million in the prior year period. Net revenues reflected a $41 million positive impact from organic growth in the non-trading segments, a $29 million positive impact from organic growth in the Market Services segment, a $4 million increase from the inclusion of revenues from acquisitions and a $9 million increase from the impact of favorable changes in foreign exchange rates.
"Our third quarter results highlight the strength of Nasdaq's diversified product offerings and business model, capitalizing on opportunities presented by 2020's capital markets backdrop, including elevated trading volumes, rising index valuations and robust IPO issuance, while also continuing to execute against the secular opportunities arising from our clients' evolving longer-term needs," said Adena Friedman, President and CEO, Nasdaq. "Nasdaq's resilience and agility to adjust to the unique operating environment presented by COVID-19 is not only demonstrated in our current results, but also in the team's continued focus on advancing Nasdaq as a technology and analytics provider, including our recently announced expansion of our Reg-Tech offerings into anti-money laundering."
GAAP operating expenses were $389 million in the third quarter of 2020, a decrease of $17 million from $406 million in the third quarter of 2019. The decrease primarily reflects lower general, administrative and other costs and lower restructuring charges, partially offset by higher compensation and benefits expense and professional fees.
Non-GAAP operating expenses were $346 million in the third quarter of 2020, an increase of $29 million, or 9%, compared to the third quarter of 2019. This reflects a $17 million organic increase primarily due to higher compensation and benefits expense, a $7 million increase from the impact of acquisitions as well as a $5 million increase from the impact of unfavorable changes in foreign exchange rates.
"Nasdaq continues to be well positioned from an operational and capital perspective despite the uncertainties and challenges presented by COVID-19, as reflected by the resilient and strong performance of our businesses and the reduction of net leverage over the course of 2020," said Michael Ptasznik, Executive Vice President and Chief Financial Officer, Nasdaq. "In turn, we continue to execute on our capital plan, including investing in infrastructure, deploying capital in attractive long term opportunities as well as delivering on our dividend growth and share repurchase objectives through the return of $425 million to shareholders during the first nine months of 2020."
On a GAAP basis, net income in the third quarter of 2020 was $264 million, or diluted EPS of $1.58, compared to $150 million, or $0.90 per diluted share, in the third quarter of 2019.
On a non-GAAP basis, net income in the third quarter of 2020 was $256 million, or $1.53 per diluted share, compared to $212 million, or $1.27 per diluted share, in the third quarter of 2019.
At September 30, 2020, the company had cash and cash equivalents of $584 million and total debt of $3,571 million, resulting in net debt of $2,987 million. This compares to total debt of $3,387 million and net debt of $3,055 million at December 31, 2019. As of September 30, 2020, there was $446 million remaining under the board authorized share repurchase program.
UPDATING 2020 NON-GAAP EXPENSE AND TAX GUIDANCE4
The company is updating its 2020 non-GAAP operating expense guidance to a range of $1,360 to $1,370 million, with the change primarily reflecting unfavorable changes in foreign exchange rates. Nasdaq expects its 2020 non-GAAP tax rate to be in the range of 26% to 27%.
BUSINESS HIGHLIGHTS
Market Services - Net revenues were $259 million in the third quarter of 2020, an increase of $33 million, or 15%, compared to the third quarter of 2019.
- Equity Derivative Trading and Clearing - Net revenues were $84 million in the third quarter of 2020, an increase of $9 million from the third quarter of 2019. The increase reflects higher U.S. industry trading volumes, partially offset by a lower U.S. net capture rate and lower overall U.S. matched market share.
- Cash Equity Trading - Net revenues were $85 million in the third quarter of 2020, an increase of $22 million from the third quarter of 2019. The increase primarily reflects higher U.S. and European industry trading volumes and a higher U.S. net capture rate, partially offset by lower overall U.S. matched market share.
- Fixed Income and Commodities Trading and Clearing - Net revenues were $14 million in the third quarter of 2020, down $2 million from the third 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.
- Trade Management Services - Revenues were $76 million in the third quarter of 2020, an increase of $4 million from the third quarter of 2019, primarily due to increased demand for connectivity services.
Corporate Services - Revenues were $132 million in the third quarter of 2020, an increase of $8 million, or 6%, compared to the third quarter of 2019.
- Listing Services - Revenues were $79 million in the third quarter of 2020, an increase of $5 million from the third quarter of 2019. The increase was primarily driven by higher U.S. listing revenues due to an increase in the overall number of listed companies and a strong IPO market.
- Corporate Solutions - Revenues were $53 million in the third quarter of 2020, an increase of $3 million from the third quarter of 2019, due to increases in both governance solutions revenues and IR intelligence revenues.
Information Services - Revenues were $238 million in the third quarter of 2020, an increase of $40 million, or 20%, compared to the third quarter of 2019.
- Market Data - Revenues were $107 million in the third quarter of 2020, an increase of $5 million from the third quarter of 2019, with organic growth in U.S. proprietary products from new sales, including continued expansion geographically, and an increase in shared tape plan revenues.
- Index - Revenues were $86 million in the third quarter of 2020, an increase of $30 million, or 54%, from the third quarter of 2019. The increase was primarily driven by higher licensing revenues from higher average assets under management (AUM) in exchange traded products (ETPs) linked to Nasdaq indexes, higher licensing revenues from futures trading linked to the Nasdaq-100 Index and higher index data revenues.
- Investment Data & Analytics - Revenues were $45 million in the third quarter of 2020, an increase of $5 million from the third quarter of 2019, primarily due to the acquisition of Solovis and growth in eVestment.
Market Technology - Revenues were $86 million in the third quarter of 2020, an increase of $2 million, or 2%, compared to the third quarter of 2019. The increase is primarily due to higher SaaS surveillance revenues and a favorable impact from changes in foreign exchange rates, partially offset by lower software delivery and support revenues and lower change request and advisory revenues. Annualized recurring revenue5, or ARR, totaled $278 million in the third quarter of 2020, an increase of 9% year over year.
CORPORATE HIGHLIGHTS
- CFO Michael Ptasznik decides to retire after a successful 30-year career in the accounting and financial services profession, and will be succeeded by Ann Dennison, Nasdaq's Controller and Chief Accounting Officer. In a separate announcement today, Nasdaq said that Michael Ptasznik has decided to retire from his position as Chief Financial Officer effective February 28, 2021. Mr. Ptasznik will be succeeded by Ann Dennison, Nasdaq's Senior Vice President, Controller and Chief Accounting Officer. Ms. Dennison will assume the role of Chief Financial Officer effective March 1, 2021.
- Nasdaq is launching several new licensed index products building on the momentum established by record AUM and trading volume in licensed index ETPs and derivatives in the third quarter of 2020. Overall AUM in ETPs benchmarked to Nasdaq's proprietary indexes totaled $313 billion as of September 30, 2020, an increase of 51% compared to September 30, 2019. The increase in AUM was led by an 83% rise year-over-year in ETP assets linked to Nasdaq-100 indexes. During the period, Nasdaq announced the launch of two new licensed index futures contracts, the Nasdaq-100 Volatility Index (VOLQ) and the Nasdaq Veles California Water Index (NQH20). In October 2020, Invesco announced the launch of the Invesco QQQ Innovation Suite, which offers investors access to additional investment products tied to the Nasdaq-100 Index and new Nasdaq Next Generation 100 Index.
- Nasdaq continues to see strong client traction in its Market Technology segment and expands its financial crime solution set with a new anti-money laundering solution. New order intake totaled $84 million during the third quarter of 2020, including four new customers. During the first nine months of 2020, Nasdaq signed nine new market infrastructure operator clients, including seven new SaaS marketplace customers, reinforcing the shift toward SaaS and service client deployments. Nasdaq announced the launch of the cloud-deployed Nasdaq Automated Investigator, an automated solution for investigating anti-money laundering for retail and commercial banks and other financial institutions.
- The Nasdaq Stock Market led U.S. exchanges for IPOs during the first nine months of 2020. In the third quarter of 2020, The Nasdaq Stock Market welcomed 144 new U.S. listings, including 105 IPOs, compared to 41 IPOs in the third quarter of 2019. Nasdaq's IPO win rate totaled 65% during the third quarter of 2020, with a 79% IPO win rate among operating companies6. The U.S. IPO win rate totaled 66% during the first nine months of 2020 and 81% among operating companies. Highlights during the third quarter included IPOs from GoodRX, Li Auto, Jamf Holding Corp and nCino, as well as six listings switches with an aggregate global market capitalization of $187 billion, including AstraZeneca PLC and Keurig Dr Pepper Inc.
- Nasdaq's Market Services segment maintains strong competitive positioning in U.S. and Europe and sets a new quarterly trading volume record in U.S. options. In the third quarter of 2020, Nasdaq's U.S. options market set a quarterly record of 660 million contracts traded, an increase of 52% year over year. During the period, U.S. cash equities market share improved from the second quarter of 2020 as the combined matched market share executed on Nasdaq's exchanges totaled 19.4%7, U.S. options share totaled 36.7%8 and Nordic equities totaled 77.5%.
- Nasdaq launches purpose initiative to advance inclusive growth and prosperity. The Purpose Initiative comprises the company's philanthropic, community outreach, corporate sustainability, and employee volunteerism programs, all designed to leverage Nasdaq's unique place at the center of capital creation, markets, and technology and drive stronger economies, more equitable opportunities and contribute to a more sustainable world.
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.
NON-GAAP INFORMATION
In addition to disclosing results determined in accordance with U.S. GAAP, Nasdaq also discloses certain non-GAAP results of operations, including, but not limited to, non-GAAP net income attributable to Nasdaq, non-GAAP diluted earnings per share, non-GAAP operating income, and non-GAAP operating expenses, that include certain adjustments or exclude certain charges and gains that are described in the reconciliation tables of U.S. GAAP to non-GAAP information provided at the end of this release. Management uses this non-GAAP information internally, along with U.S. GAAP information, in evaluating our performance and in making financial and operational decisions. We believe our presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations. In addition, we believe the presentation of these measures is useful to investors for period-to-period comparisons of results as the items described below in the reconciliation tables do not reflect ongoing operating performance.
These measures are not in accordance with, or an alternative to, U.S. GAAP, and may be different from non-GAAP measures used by other companies. In addition, other companies, including companies in our industry, may calculate such measures differently, which reduces its usefulness as a comparative measure. Investors should not rely on any single financial measure when evaluating our business. This information should be considered as supplemental in nature and is not meant as a substitute for our operating results in accordance with U.S. GAAP. We recommend investors review the U.S. GAAP financial measures included in this earnings release. When viewed in conjunction with our U.S. GAAP results and the accompanying reconciliations, we believe these non-GAAP measures provide greater transparency and a more complete understanding of factors affecting our business than U.S. GAAP measures alone. We understand that analysts and investors regularly rely on non-GAAP financial measures, such as non-GAAP net income attributable to Nasdaq, non-GAAP diluted earnings per share, non-GAAP operating income and non-GAAP operating expenses to assess operating performance. We use these measures because they highlight trends more clearly in our business that may not otherwise be apparent when relying solely on U.S. GAAP financial measures, since these measures eliminate from our results specific financial items that have less bearing on our ongoing operating performance.
Foreign exchange impact: In countries with currencies other than the U.S. dollar, revenues and expenses are translated using monthly average exchange rates. Certain discussions in this release isolate the impact of year-over-year foreign currency fluctuations to better measure the comparability of operating results between periods. Operating results excluding the impact of foreign currency fluctuations are calculated by translating the current period's results by the prior period's exchange rates.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information set forth in this communication contains forward-looking statements that involve a number of risks and uncertainties. Nasdaq cautions readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking information. Such forward-looking statements include, but are not limited to (i) projections relating to our future financial results, total shareholder returns, growth, trading volumes, products and services, ability to transition to new business models, order backlog, taxes and achievement of synergy targets, (ii) statements about the closing or implementation dates and benefits of certain acquisitions and other strategic, restructuring, technology, de-leveraging and capital allocation initiatives, (iii) statements about our integrations of our recent acquisitions, (iv) statements relating to any litigation or regulatory or government investigation or action to which we are or could become a party, (v) the potential impact of the COVID-19 pandemic on our business, operations, results of operations, financial condition, workforce or the operations or decisions of our customers, suppliers or business partners, and (vi) other statements that are not historical facts. Forward-looking statements involve a number of risks, uncertainties or other factors beyond Nasdaq's control. These factors include, but are not limited to, Nasdaq's ability to implement its strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors detailed in Nasdaq's filings with the U.S. Securities and Exchange Commission, including its annual reports on Form 10-K and quarterly reports on Form 10-Q which are available on Nasdaq's investor relations website at http://ir.nasdaq.com and the SEC's website at www.sec.gov. Nasdaq undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.
WEBSITE DISCLOSURE
Nasdaq intends to use its website, ir.nasdaq.com, as a means for disclosing material non-public information and for complying with SEC Regulation FD and other disclosure obligations.
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