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- 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 revenues1 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 EPS2 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.
Nasdaq, Inc. (Nasdaq:NDAQ) today reported financial results for the second quarter 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.
“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.
"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 GUIDANCE3
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.
CORPORATE HIGHLIGHTS
- Nasdaq further advances its strategic repositioning in the second quarter of 2018 by completing the sale of its Public Relations Solutions and Digital Media Services businesses. The company completed the sale of its Public Relations Solutions and Digital Media Services businesses to West Corporation in April 2018, which follows the announcement in September 2017 to reorient the company, further strengthen its focus on clients and elevate financial performance. To achieve these objectives, the company is rebalancing its organic investments to focus more on the higher growth opportunities while becoming more transparent around capital objectives to drive returns for shareholders.
- The Nasdaq Stock Market led U.S. exchanges for IPOs in the second quarter of 2018 with a 74% win rate, while strong Nordic listings growth continued. In the U.S. market, The Nasdaq Stock Market welcomed 89 new listings in the second quarter of 2018, including 56 IPOs. The U.S. IPO win rate totaled 74% during the second quarter of 2018 and 69% during the first six months of 2018. Highlights from the second quarter included the DocuSign, Carbon Black, Uxin and GreenSky IPO's as well as listing switches to The Nasdaq Stock Market by Extended Stay America and Avnet. Nasdaq's Nordic, Baltic and First North exchanges experienced 29 new listings including 22 IPOs and 6 upgrades from First North to Main Market, bringing total Nordic-listed companies at June 30, 2018 to 1,008, an increase of 7% from June 30, 2017.
- Market Technology order intake totaled $109 million during the first six months of 2018, up 18% compared to the first six months of 2017. New deals were signed in the second quarter to provide post-trade technology to the National Stock Exchange of India, or NSE, and the SIX Swiss Exchange, each leveraging the Nasdaq Financial Framework. Nasdaq also experienced continued strong growth in its SMARTS surveillance business with new customers in various customer classes including regulators, exchanges, broker-dealers and asset managers. Lastly, the company is also advancing its "markets economy" strategy of delivering leading marketplace solutions to clients outside of traditional financial markets, including in the crypto-currency space, where Nasdaq now has five customers who will be leveraging our market technology for trading, clearing or surveillance.
- Nasdaq maintains strong competitive positioning in our Market Services segment and executed a new record closing cross during the June Russell index re-balance. In the second quarter of 2018, the combined U.S. equities matched market share executed on Nasdaq's exchanges total 19.1%,1 while market share in the Nordic markets totaled 66.9%. In June 2018, Nasdaq's Closing Cross set a record for number of shares traded during the 2018 Russell U.S. indexes reconstitution, including 1.188 billion shares representing $39 billion in value, all of which was executed in less than one second.
- Nasdaq saw record ETP assets under management tracking Nasdaq indexes, up 27% year over year. Overall AUM in ETPs benchmarked to Nasdaq's proprietary index families increased to a record $187 billion as of June 30, 2018, up 27% compared to June 30, 2017. The June 30, 2018 total AUM included $79 billion, or 42%, tracking smart beta indexes. At June 30, 2018, the number of ETPs tracking Nasdaq-licensed indexes rose to 347 compared to 316 at June 30, 2017.
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1 Represents revenues less transaction-based expenses.
2 Refer to our reconciliations of U.S. GAAP to non-GAAP net income, diluted earnings per share, operating income and operating expenses, included in the attached schedules.
3 U.S. GAAP operating expense is not provided due to the inherent difficulty in quantifying certain amounts due to a variety of factors including the
unpredictability in the movement in foreign currency rates, as well as future charges or reversals outside of the normal course of business.
4 In the second quarter of 2018, the combined U.S. cash equities matched market share executed on Nasdaq's exchanges consisted of 15.2% at The Nasdaq Stock Market, 3.1% at Nasdaq BX and 0.8% at Nasdaq PSX.
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