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Q2 2009 Earnings Call

August 6, 2009 8:00 am ET


Vincent Palmiere - Vice President Investor Relations

Bob Greifeld – CEO

David Warren - Chief Financial Officer

Ed Knight - General Counsel


Dan Fannon - Jefferies

Roger Freeman – Barclays Capital

Rich Repetto - Sandler O'Neill

Mike Vinciquerra - BMO Capital Markets

Howard Chen – Credit Suisse

Mike Carrier - Deutsche Bank

David Grossman - Thomas Weisel Partners

Rob Rutschow – CLSA

Justin Schack – Rosenblatt Securities



(Operator Instructions) Welcome to the NASDAQ OMX Second Quarter 2009 Earnings Results Conference Call. At this time I would like to turn the conference over to the Vice President of Investor Relations, Mr. Vincent Palmiere.

Vincent Palmiere

Thanks everyone for joining us this morning to discuss our second quarter 2009 earnings results. Joining me are Bob Greifeld, CEO, David Warren, Chief Financial Officer, and Ed Knight, our General Counsel.

Following our prepared remarks, as always, we will open up the line for Q&A. If you haven't done so already, you can access the results and the presentation on our IR website at www.nasdaqomx.com. We intend to use the website as a means of disclosing material, non-public information and for complying with disclosure obligations under the SEC regulation FD and these disclosures will be included under the Events & Presentations of the site. If you have any questions after you can give me a call at 212-401-8742.

Before we begin I would like to remind you that certain statements in the prepared presentation and during the subsequent Q&A may relate to future events and expectations and as such constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The actual results might differ materially from those projected in these forward looking statements. Information concerning factors that could cause actual results to differ from the forward looking statements is contained in our press release and in our periodic reports filed with the SEC.

With that I will turn it over to Bob.

Bob Greifeld

During my prepared comments today I’d like to take a few minutes to highlight some key developments as well as review the many growth opportunities that we have. After I’m done I’ll turn the call over to David Warren who in his last appearance as our CFO will walk you through the financial results in more detail.

First, I’m pleased to report that NASDAQ OMX delivered another solid quarter in a tough economic environment. On a non-GAAP basis we reported diluted earnings per share of $0.47 and improved our operating margins to 46% up from 40% in the year ago period. During the quarter we also generated strong cash flow, allowing us to reduce our debt obligations and lower our net debt position. This alone speaks to the fact that we continue to execute our long stated goal of achieving operating efficiencies and reducing leverage.

When I spoke to you during the fourth quarter 2008 call in February I told you that we had an ambitious plan that contained more initiatives then at any time during my tenure. Let me begin my comments today with a review of those organic growth opportunities, or green shoots, and the remarkable progress we’ve achieved in the last six months.

Starting with the Boston Stock Exchange now known as BX. Earlier this year we launched a second cash equities market called BX. Launching this market was an efficient use of our existing technology and network infrastructure. It provided us with pricing flexibility previously unavailable. The success of this market is unparalleled as it captured 2.5% market share while being the fastest new US cash equities market to reach 200 million shares of match volume per day.

It achieved this in 124 days after launch. The next best performing market reached 200 million shares of match volume in 235 days. In a development earlier this week we announced that we will shift our pricing BX to a positive net capture rate starting September 1, thus providing the opportunity for revenue improvement in the fourth quarter.

With respect to IDCG, as our interest rate swap and clearing and settlement sub, IDCG announced that BNY Mellon had mad a strategic minority investment in the firm, representing another positive step forward in the development of this business. First, BNY brings to us a really unique background as a provider of innovative collateral management services. They will allow the customers of IDCG the ability to use their capital resources more efficiently by responding to the collateral demand of multiple venues.

Second, BNY will allow IDCG to expand its list of acceptable forms of initial margin by directly providing a clearinghouse with market access for converting such assets on deposit. These assets held in custody at BNY and pledged to IDCG could be readily converted to cash in the case of a default. Having this service completely in house with an equity partner managing the process allows the clearinghouse increased flexibility in margin management, exactly the types of services that legislators such as Barney Frank and Collin Peterson called for when they said that regulators should, “authorize the use of non-cash collateral to satisfy margin requirements.”

Finally, BNY has a significant customer base with interest rate exposure. These customers will now be able to access IDCG via the BNY relationship. To provide a quantitative example of the traction that this business is gaining, we currently have a combination of 12 sell side, buy side and GSC market participants that have submitted deals worth nearly $0.5 trillion of notional value outstanding into our shadow clearing environment. Shadow clearing allows them to test the functionality and the performance of our service with their own portfolios.

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