NASDAQ OMX Reports Third Quarter 2012 Results
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NASDAQ OMX Reports Third Quarter 2012 Results
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
NEW YORK, Oct. 24, 2012 (GLOBE NEWSWIRE) -- 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,
2012
June 30,
2012
September 30,
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,
2012
June 30,
2012
September 30,
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,
2012
December 31,
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,
2012
June 30,
2012
September 30,
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,
2012
June 30,
2012
September 30,
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,
2012
June 30,
2012
September 30,
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,
2012
June 30,
2012
September 30,
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,
2012
June 30,
2012
September 30,
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.
CONTACT: Media Relations:
Joseph Christinat +1.646.441.5121
Joseph.Christinat@NASDAQOMX.Com
Investor Relations:
John Sweeney +1.212.401.8737
John.Sweeney@NASDAQOMX.Com
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