NASDAQ OMX Reports Third Quarter 2012 Results

24/10/2012

  • Third quarter non-GAAP diluted EPS of $0.62, compared to $0.67 in the prior year quarter; Third quarter 2012 GAAP diluted EPS of $0.52
  • Third quarter net exchange revenues1 were $409 million, down six percent year-over-year, both on a reported and on an organic basis (constant currency and excluding acquisitions)
  • 2012 operating expense guidance lowered to $922 to $935 million, previously $935 to $965 million

The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) today reported results for the third quarter of 2012. Third quarter net exchange revenues were $409 million, down six percent compared to the third quarter of 2011. Excluding the impact of foreign currency, third quarter 2012 net exchange revenues declined four percent year-over-year.

Operating expenses were $239 million, compared to $241 million in the third quarter of 2011. On a non-GAAP basis, third quarter 2012 operating expenses were $228 million, down $4 million year-over-year.

Third quarter 2012 non-GAAP diluted earnings per share was $0.62, down $0.05 compared to the prior year quarter. Non-GAAP earnings per share in the third quarter of 2012 excludes a loss on the sale of IDCG of $14 million, restructuring charges of $10 million, merger and strategic initiatives net gain of $3 million, and special legal expenses of $4 million. On a GAAP basis, net income attributable to NASDAQ OMX for the third quarter of 2012 was $89 million, or $0.52 per diluted share, compared with $110 million, or $0.61 per diluted share, in the prior year quarter.

 
1 Represents revenues less transaction rebates, brokerage, clearance and exchange fees.

"Our strategy to build a diversified franchise that generates substantial recurring revenues and cash flows, even against the backdrop of U.S. and Nordic equity volumes declining over 30 percent year-over-year, is clearly paying dividends," said Bob Greifeld, CEO, NASDAQ OMX.

Mr. Greifeld continued, "Despite the low level of trading activity, we remain focused on the factors that allow us to continue to win in our markets, and position us ideally for when a higher level of trading activity resumes. We continued to exercise disciplined expense control and continued to invest in our future through our "GIFT" internal investment program. This program has resulted in a variety of new initiatives this year, including our successful BX Options exchange introduction. We will continue to fund these innovative ideas, which drive organic growth and diversify our business into compelling adjacent markets."

Lee Shavel, NASDAQ OMX's EVP and Chief Financial Officer, said: "We are pleased that the cost reduction plan that we put in place in the first quarter has enabled us to deliver strong expense control, without sacrificing investment in our business. Our previously announced cost reduction plan is on track to reduce our cost base by a $50 million run rate by the end of fiscal 2012. As a result of our ongoing efforts to manage the expense base, we are reducing our fiscal 2012 operating expense guidance to $922 to $935 million, down from the previous range of $935 to $965 million. In addition to prudently managing our cost base, we continued to generate substantial capital and to execute on our strategy to deploy that capital effectively. Year-to-date, we have returned $225 million to our shareholders through buybacks and $43 million through our dividend program. As always, we approach our capital deployment initiatives with the goal of maximizing return on invested capital to deliver substantial value for our shareholders."

At September 30, 2012, the company had cash and cash equivalents of $438 million and total debt of $1,986 million, resulting in net debt of $1,548 million. This compares to net debt of $1,611 million at December 31, 2011. During the third quarter of 2012, the company repurchased 2.2 million shares of outstanding common stock under a share repurchase program, for a total of $50 million. Since January 2009, we have repurchased $1,122 million of outstanding common stock, representing 51.3 million shares at an average price of $21.90.

BUSINESS HIGHLIGHTS

Market Services (66% of total net exchange revenues) - Net exchange revenues were $269 million in the third quarter of 2012, down $31 million when compared to the third quarter of 2011.

Cash Equities (11% of total net exchange revenues) – Total net cash equity trading revenues were $47 million in the third quarter of 2012, down $20 million compared to the third quarter of 2011. Trading volumes declined from the prior year period when the European debt crisis and the uncertainty surrounding the U.S. debt ceiling generated substantial market volatility and volumes.

Derivatives (18% of total net exchange revenues) – Total net derivative trading and clearing revenues were $72 million in the third quarter of 2012, down $12 million compared to the third quarter of 2011. The decline was primarily due to lower industry trading volumes in the U.S. and the Nordics, as well as an unfavorable impact from foreign exchange of $2 million. This decline was partially offset by market share and revenue capture gains in our U.S. equity options business.

Access and Broker Services (16% of total net exchange revenues) – Access and broker services revenues totaled $66 million, up $1 million compared to the third quarter of 2011. The increase was primarily driven by the uptake of new products including 40G connectivity.

Market Data (21% of total net exchange revenues) – Total Market Data revenues of $84 million reflect a $1 million increase compared to the year ago quarter. The increase in Market Data revenues was driven by growth in U.S. proprietary products and pricing initiatives, partially offset by lower net revenues in U.S. tape plans and European data.

Issuer Services (23% of total net exchange revenues) – Revenues were $93 million in the third quarter of 2012, up $3 million compared to the third quarter of 2011. Corporate Solutions revenues increased $6 million, driven by the acquisitions of BWise in May 2012 and Glide Technologies in October 2011 and growth in our Shareholder.com and GlobeNewswire products. The Global Index Group's revenues increased by $1 million, or 8% year-over-year, driven by increased assets under management of licensed financial products.

Market Technology (11% of total net exchange revenues) – Revenues of $47 million in the third quarter of 2012 increased $1 million compared to the third quarter of 2011.

COST GUIDANCE – For the full year of 2012, total core operating expenses are expected to be in the range of $865 million to $873 million (down from prior core expense guidance of $870 to $890 million), plus $32 million to $36 million in incremental new initiative spending, and an additional $25 million to $26 million due to the BWise and NOS acquisitions, resulting in total operating expenses in the range of $922 million to $935 million, down from previous guidance of $935 to $965 million. This guidance excludes expenses related to the cost reduction plan and expenses for the proposed voluntary accommodation program and special legal expenses.

About NASDAQ OMX Group

The inventor of the electronic exchange, The NASDAQ OMX Group, Inc., fuels economies and provides transformative technologies for the entire lifecycle of a trade - from risk management to trade to surveillance to clearing. In the U.S. and Europe, we own and operate 23 markets, 3 clearinghouses and 5 central securities depositories supporting equities, options, fixed income, derivatives, commodities, futures and structured products. Able to process more than 1 million messages per second at sub-40 microsecond speeds with 99.99+% uptime, our technology drives more than 70 marketplaces in 50 developed and emerging countries into the future, powering 1 in 10 of the world's securities transactions. Our award-winning data products and worldwide indexes are the benchmarks in the financial industry. Home to approximately 3,400 listed companies worth $6 trillion in market cap whose innovations shape our world, we give the ideas of tomorrow access to capital today. Welcome to where the world takes a big leap forward, daily. Welcome to the NASDAQ OMX Century. To learn more, visit www.nasdaqomx.com. Follow us on Facebook (www.facebook.com/NASDAQ) and Twitter (www.twitter.com/nasdaqomx). (Symbol: NDAQ and member of S&P 500)

Non-GAAP Information

In addition to disclosing results determined in accordance with GAAP, NASDAQ OMX also discloses certain non-GAAP results of operations, including, but not limited to, net income attributable to NASDAQ OMX, diluted earnings per share, net exchange revenues, operating income, and operating expenses, that make certain adjustments or exclude certain charges and gains that are described in the reconciliation table of GAAP to non-GAAP information provided at the end of this release. Management believes that this non-GAAP information provides investors with additional information to assess NASDAQ OMX's operating performance by making certain adjustments or excluding costs or gains and assists investors in comparing our operating performance to prior periods. Management uses this non-GAAP information, along with GAAP information, in evaluating its historical operating performance.

The non-GAAP information is not prepared in accordance with GAAP and may not be comparable to non-GAAP information used by other companies. The non-GAAP information should not be viewed as a substitute for, or superior to, other data prepared in accordance with GAAP.

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 OMX 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 about our future financial results, growth, trading volumes, tax benefits and achievement of synergy targets, (ii) statements about the implementation dates and benefits of certain strategic and capital return initiatives, (iii) statements about our integrations of our recent acquisitions and (iv) other statements that are not historical facts. Forward-looking statements involve a number of risks, uncertainties or other factors beyond NASDAQ OMX's control. These factors include, but are not limited to, NASDAQ OMX'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 OMX'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 OMX's website at http://www.nasdaqomx.com and the SEC's website at www.sec.gov. NASDAQ OMX undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

NDAQF

The NASDAQ OMX Group, Inc.
Consolidated Statements of Income
(in millions, except per share amounts)
(unaudited)
       
  Three Months Ended
  September 30, June 30, September 30,
  2012 2012 2011
Revenues:      
Market Services $ 603 $ 688 $ 808
Cost of revenues:      
Transaction rebates (250) (299) (390)
Brokerage, clearance and exchange fees (84) (100) (118)
Total cost of revenues (334) (399) (508)
       
Total Market Services revenues less transaction rebates, brokerage, clearance and exchange fees 269 289 300
       
Issuer Services 93 91 90
Market Technology 47 44 46
       
Revenues less transaction rebates, brokerage, clearance and exchange fees 409 424 436
Operating Expenses:      
Compensation and benefits 113 113 118
Marketing and advertising 6 6 4
Depreciation and amortization 26 25 28
Professional and contract services 24 23 21
Computer operations and data communications 18 17 17
Occupancy 22 23 23
Regulatory 8 9 9
Merger and strategic initiatives (3) 1 3
Restructuring charges 10 17 --
General, administrative and other 15 15 18
Total operating expenses 239 249 241
       
Operating income 170 175 195
       
Interest income 2 2 3
Interest expense (24) (24) (30)
Loss on sale of business (14) -- --
Asset impairment charges -- (28) --
Income from unconsolidated investees, net -- -- 1
Dividend and investment income -- -- 1
       
Income before income taxes 134 125 170
Income tax provision 45 33 61
Net income 89 92 109
       
Net loss attributable to noncontrolling interests -- 1 1
Net income attributable to NASDAQ OMX $ 89 $ 93 $ 110
       
Basic and diluted earnings per share:      
Basic earnings per share $ 0.53 $ 0.55 $ 0.62
Diluted earnings per share $ 0.52 $ 0.53 $ 0.61
Cash dividends declared per common share $ 0.13 $ 0.13 $ --
       
Weighted-average common shares outstanding for earnings per share:      
Basic 166.2 169.4 177.1
Diluted 170.5 173.4 180.9

 

 
The NASDAQ OMX Group, Inc.
Revenue Detail
(in millions)
(unaudited)
 
  Three Months Ended
  September 30, June 30, September 30,
  2012 2012 2011
       
MARKET SERVICES      
Transaction Services      
Cash Equity Trading Revenues:    
U.S. cash equity trading $ 297 $ 373 $ 481
Cost of revenues:      
Transaction rebates (193) (246) (327)
Brokerage, clearance and exchange fees (75) (94) (111)
Total U.S. cash equity cost of revenues (268) (340) (438)
Net U.S. cash equity trading revenues 29 33 43
European cash equity trading 18 19 24
Total net cash equity trading revenues 47 52 67
       
Derivative Trading and Clearing Revenues:  
U.S. derivative trading and clearing 110 103 121
Cost of revenues:      
Transaction rebates (57) (53) (63)
Brokerage, clearance and exchange fees (9) (6) (7)
Total U.S. derivative trading and clearing cost of revenues (66) (59) (70)
Net U.S. derivative trading and clearing revenues 44 44 51
European derivative trading and clearing 28 26 33
Total net derivative trading and clearing revenues 72 70 84
       
Access Services Revenues 61 61 60
       
Total Transaction Services revenues less transaction rebates, brokerage, clearance and exchange fees 180 183 211
       
Market Data Revenues:      
Net U.S. tape plans 28 31 30
U.S. market data products 38 38 33
European market data products 18 21 20
       
Total Market Data revenues 84 90 83
       
Broker Services Revenues 5 5 5
       
Other Market Services Revenues -- 11 1
Total Market Services revenues less transaction rebates, brokerage, clearance and exchange fees 269 289 300
       
ISSUER SERVICES      
Global Listing Services Revenues:      
Annual renewal 28 28 30
Listing of additional shares 10 10 10
Initial listing 5 4 5
Total U.S. listing services 43 42 45
European listing fees 12 12 14
Corporate Solutions 24 22 18
Total Global Listing Services revenues 79 76 77
       
Global Index Group Revenues 14 15 13
Total Issuer Services revenues 93 91 90
       
MARKET TECHNOLOGY      
License, support and facility management 27 26 28
Delivery project 7 8 6
Change request, advisory and broker surveillance 13 10 12
Total Market Technology revenues 47 44 46
       
Total revenues less transaction rebates, brokerage, clearance and exchange fees $ 409 $ 424 $ 436
 
 
The NASDAQ OMX Group, Inc.
Consolidated Balance Sheets
(in millions)
     
  September 30, December 31,
  2012 2011
Assets (unaudited)  
Current assets:    
Cash and cash equivalents $ 438 $ 506
Restricted cash 81 34
Financial investments, at fair value 157 279
Receivables, net 327 308
Deferred tax assets 16 16
Default funds and margin deposits 194 17
Open clearing contracts:  
Derivative positions, at fair value -- 1,566
Resale agreements, at contract value -- 3,745
Other current assets 116 110
Total current assets 1,329 6,581
Non-current restricted cash 25 97
Property and equipment, net 203 193
Non-current deferred tax assets 303 392
Goodwill 5,286 5,061
Intangible assets, net 1,645 1,648
Other non-current assets 129 119
Total assets $ 8,920 $ 14,091
     
Liabilities    
Current liabilities:    
Accounts payable and accrued expenses $ 149 $ 164
Section 31 fees payable to SEC 24 106
Accrued personnel costs 86 132
Deferred revenue 165 124
Other current liabilities 115 112
Deferred tax liabilities 27 27
Default funds and margin deposits 194 17
Open clearing contracts:  
Derivative positions, at fair value -- 1,566
Repurchase agreements, at contract value -- 3,745
Current portion of debt obligations 45 45
Total current liabilities 805 6,038
Debt obligations 1,941 2,072
Non-current deferred tax liabilities 686 670
Non-current deferred revenue 160 154
Other non-current liabilities 192 171
Total liabilities 3,784 9,105
     
Commitments and contingencies  
Equity    
NASDAQ OMX stockholders' equity:  
Common stock 2 2
Additional paid-in capital 3,804 3,793
Common stock in treasury, at cost (1,063) (860)
Accumulated other comprehensive loss (222) (350)
Retained earnings 2,614 2,391
Total NASDAQ OMX stockholders' equity 5,135 4,976
Noncontrolling interests 1 10
Total equity 5,136 4,986
Total liabilities and equity $ 8,920 $ 14,091
 
 
The NASDAQ OMX Group, Inc.
Reconciliation of GAAP Net Income, Diluted Earnings Per Share, Operating Income, Revenues and Operating Expenses
to Non-GAAP Net Income, Diluted Earnings Per Share, Operating Income, Revenues and Operating Expenses
(in millions, except per share amounts)
(unaudited)
       
  Three Months Ended
  September 30, June 30, September 30,
  2012 2012 2011
GAAP net income attributable to NASDAQ OMX: $ 89 $ 93 $ 110
Non-GAAP adjustments:      
       
Income from open positions relating to the operations of the Exchange -- (11) --
Asset impairment charges -- 28 --
Loss on sale of business 14 -- --
Restructuring charges 10 17 --
Merger and strategic initiatives (3) 1 3
Extinguishment of debt -- -- 6
Special legal expenses 4 -- --
Other -- 2 --
Total non-GAAP adjustments 25 37 9
Adjustment to the income tax provision to reflect non-GAAP adjustments(1) (10) (13) (3)
Significant tax adjustments, net 1 (6) 5
Total non-GAAP adjustments, net of tax 16 18 11
       
Non-GAAP net income attributable to NASDAQ OMX: $ 105 $ 111 $ 121
       
GAAP diluted earnings per common share: $ 0.52 $ 0.53 $ 0.61
Total adjustments from non-GAAP net income above 0.10 0.11 0.06
Non-GAAP diluted earnings per common share: $ 0.62 $ 0.64 $ 0.67
       
  Three Months Ended
  September 30, June 30, September 30,
  2012 2012 2011
       
GAAP operating income: $ 170 $ 175 $ 195
Non-GAAP adjustments:      
       
Income from open positions relating to the operations of the Exchange -- (11) --
Restructuring charges 10 17 --
Merger and strategic initiatives (3) 1 3
Extinguishment of debt -- -- 6
Special legal expenses 4 -- --
Other -- 2 --
Total non-GAAP adjustments 11 9 9
       
Non-GAAP operating income: $ 181 $ 184 $ 204
       
 
     
Total Non-GAAP revenues less transaction rebates, brokerage, clearance and exchange fees $ 409 $ 413 $ 436
       
Non-GAAP operating margin (2) 44% 45% 47%
 
 
(1) We determine the tax effect of each item based on the tax rules in the respective jurisdiction where the transaction occurred.
(2) Non-GAAP operating margin equals non-GAAP operating income divided by total revenues less transaction rebates, brokerage, clearance and exchange fees.
 
 
The NASDAQ OMX Group, Inc.
Reconciliation of GAAP Net Income, Diluted Earnings Per Share, Operating Income, Revenues and Operating Expenses
to Non-GAAP Net Income, Diluted Earnings Per Share, Operating Income, Revenues and Operating Expenses
(in millions)
(unaudited)
       
  Three Months Ended
  September 30, June 30, September 30,
  2012 2012 2011
       
GAAP revenues less transaction rebates, brokerage, clearance and exchange fees: $ 409 $ 424 $ 436
       
Non-GAAP adjustments:      
       
Income from open positions relating to the operations of the Exchange -- (11) --
Total non-GAAP adjustments -- (11) --
       
Non-GAAP revenues less transaction rebates, brokerage, clearance and exchange fees: $ 409 $ 413 $ 436
       
       
  Three Months Ended
  September 30, June 30, September 30,
  2012 2012 2011
       
GAAP operating expenses: $ 239 $ 249 $ 241
       
Non-GAAP adjustments:      
       
Restructuring charges (10) (17) --
Merger and strategic initiatives 3 (1) (3)
Extinguishment of debt -- -- (6)
Special legal expenses (4) -- --
Other -- (2) --
Total non-GAAP adjustments (11) (20) (9)
       
Non-GAAP operating expenses: $ 228 $ 229 $ 232
 
 
 
The NASDAQ OMX Group, Inc.
Quarterly Key Drivers Detail
(unaudited)
       
  Three Months Ended
  September 30, June 30, September 30,
  2012 2012 2011
Market Services      
Cash Equity Trading      
NASDAQ securities      
Total average daily share volume (in billions) 1.66 1.80 2.18
Matched market share executed on NASDAQ 25.2% 27.3% 28.0%
Matched market share executed on NASDAQ OMX BX 2.7% 2.9% 2.5%
Matched market share executed on NASDAQ OMX PSX 1.2% 1.6% 1.2%
Market share reported to the FINRA/NASDAQ      
Trade Reporting Facility 31.5% 31.4% 28.6%
Total market share (1) 60.6% 63.3% 60.2%
       
New York Stock Exchange, or NYSE, securities      
Total average daily share volume (in billions) 3.39 3.86 4.78
Matched market share executed on NASDAQ 12.8% 13.7% 14.3%
Matched market share executed on NASDAQ OMX BX 2.5% 2.7% 2.5%
Matched market share executed on NASDAQ OMX PSX 0.6% 0.9% 0.6%
Market share reported to the FINRA/NASDAQ      
Trade Reporting Facility 28.6% 29.1% 25.6%
Total market share (1) 44.6% 46.4% 43.0%
       
NYSE MKT and regional securities      
Total average daily share volume (in billions) 0.94 1.19 1.80
Matched market share executed on NASDAQ 16.1% 18.3% 19.9%
Matched market share executed on NASDAQ OMX BX 3.0% 2.9% 2.1%
Matched market share executed on NASDAQ OMX PSX 1.5% 2.4% 2.0%
Market share reported to the FINRA/NASDAQ      
Trade Reporting Facility 29.5% 28.1% 24.2%
Total market share (1) 50.1% 51.8% 48.2%
       
Total U.S.-listed securities      
Total average daily share volume (in billions) 5.99 6.85 8.76
Matched share volume (in billions) 76.6 95.8 125.0
Matched market share executed on NASDAQ 16.8% 18.1% 18.9%
Matched market share executed on NASDAQ OMX BX 2.7% 2.8% 2.4%
Matched market share executed on NASDAQ OMX PSX 0.9% 1.3% 1.1%
       
NASDAQ OMX Nordic and NASDAQ OMX Baltic Securities      
Average daily number of equity trades 284,764 369,680 422,658
Total average daily share volume (in billions) $ 3.2 $ 4.4 $ 5.1
Total market share 68.5% 67.8% 72.5%
       
Derivative Trading and Clearing      
U.S. Equity Options      
Total industry average daily volume (in millions) 13.8 14.9 18.5
NASDAQ OMX PHLX matched market share 21.4% 19.6% 22.3%
The NASDAQ Options Market matched market share 5.2% 5.6% 4.1%
NASDAQ OMX BX Options Market matched market share 0.7% -- --
       
NASDAQ OMX Nordic and NASDAQ OMX Baltic      
Average daily volume:      
Options, futures and fixed-income contracts 371,230 431,154 491,968
Finnish option contracts traded on Eurex 70,211 92,616 65,716
       
NASDAQ OMX Commodities      
Clearing Turnover:      
Power contracts (TWh)(2) 384 346 416
Carbon contracts (1000 tCO2)(2) 5,009 6,951 15,511
       
Issuer Services      
Initial public offerings      
NASDAQ 17 15 16
Exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic 1 -- 2
       
New listings      
NASDAQ (3) 40 29 33
Exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic (4) 4 2 5
       
Number of listed companies      
NASDAQ (5) 2,610 2,636 2,717
Exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic (6) 754 759 771
       
Market Technology      
Order intake (in millions)(7) $ 31 $ 77 $ 35
Total order value (in millions)(8) $ 523 $ 529 $ 473
 
(1) Includes transactions executed on NASDAQ's, NASDAQ OMX BX's and NASDAQ OMX PSX's systems plus trades reported through the FINRA/NASDAQ Trade Reporting Facility.
(2) Primarily transactions executed on Nord Pool and reported for clearing to NASDAQ OMX Commodities measured by Terawatt hours (TWh) and one thousand metric tons of carbon dioxide (1000 tCO2).
(3) New listings include IPOs, including those completed on a best efforts basis, issuers that switched from other listing venues, closed-end funds and separately listed ETFs.
(4) New listings include IPOs and represent companies listed on the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic and companies on the alternative markets of NASDAQ OMX First North.
(5) Number of listed companies for NASDAQ at period end, including separately listed ETFs.
(6) Represents companies listed on the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic and companies on the alternative markets of NASDAQ OMX First North at period end.
(7) Total contract value of orders signed during the period.
(8) Represents total contract value of orders signed that are yet to be recognized as revenue.