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Nasdaq OMX Group (NDAQ)

Q3 2010 Earnings Call

October 29, 2010 8:00 am ET

Executives

Vince Palmiere - Vice President of Investor Relations & Nasdaq Corporate Finance and Head of Nasdaq Activities

Robert Greifeld - Chief Executive Officer, Staff Director, Member of Executive Committee and Member of Finance Committee

Adena Friedman - Chief Financial Officer and Executive Vice President of Corporate Strategy

Analysts

Niamh Alexander - Keefe, Bruyette, & Woods, Inc.

Alex Kramm - UBS Investment Bank

Edward Ditmire - Macquarie Research

Christopher Allen - Ticonderoga Securities LLC

Celeste Brown - Morgan Stanley

Rob Rutschow - Credit Agricole Securities (USA) Inc.

Michael Carrier - Deutsche Bank AG

Richard Repetto - Sandler O`Neill

Michael Vinciquerra - BMO Capital Markets U.S.

Howard Chen - Crédit Suisse AG

Patrick O'Shaughnessy - Raymond James & Associates

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

Christopher Harris - Wells Fargo Securities, LLC

Daniel Fannon - Jefferies & Company, Inc.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Mark Lane - William Blair & Company L.L.C.

Matthew Heinz - Jefferies & Company

Justin Schack - Rosenblatt Securities

Roger Freeman - Barclays Capital

Daniel Harris - Goldman Sachs Group Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the NASDAQ OMX Third Quarter 2010 Results Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference, Vince Palmiere, Vice President, Investor Relations.

Vince Palmiere

Thank you, operator. Good morning, and thank you for joining us today to discuss our third quarter 2010 earning results. Joining me are Bob Greifeld, our Chief Executive Officer; Adena Friedman, our Chief Financial Officer; and Ed Knight, our General Counsel. Following our prepared remarks, we'll open up the line for Q&A. You can access the result's press release and presentation on the NASDAQ OMX Investor Relations 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 SEC Regulation FD. And these disclosures will be included under the Events and Presentations section of the site.

And before I turn the call over to Bob, I’d like to remind you that certain statements in the prepared presentation and during the subsequent Q&A period 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 may differ materially from those projected in these forward-looking statements, and information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and in our periodic reports filed with the SEC. And with that, I'll turn the it over to Bob.

Robert Greifeld

Thank you, everybody for joining the call this morning. I'll begin by spending a few minutes highlighting the third quarter 2010 results, and then I will update you on the progress we are making with some of our initiatives. Adena will then walk you through the financials.

This morning, we reported net income of $101 million or $0.50 per diluted share, an increase of 79% when compared to the third quarter 2009 GAAP results and an increase of 19% when compared to non-GAAP results. This represents an incredibly strong performance and we are delighted, particularly given the lower industry volumes we saw during the quarter. Our success can be attributed to the steps we have taken to diversify our business and to identified opportunities to deliver value-added products and services to our customers.

During our recent analyst day, we outlined how we have focused our efforts and goals on revenue growth measured as either in alpha or beta return, with alpha representing our hard work and innovation, and beta primarily driven by volume and other macro-markets trends. What we're particularly pleased with this quarter is that despite significant volume or beta headwinds, we were able to grow revenues and profits over the prior year due to successful alpha return initiatives. These results showed that our hard work is paying off and delivering results.

Turning to the details of the quarter, in Market Services, revenues increased $18 million or 8% from the third quarter of 2009, despite declines in industry volumes in U.S. cash equities and options. The revenue growth was driven by strong demand for Access Services, higher U.S proprietary market data revenue, increases in U.S. cash equities revenue and growth in European derivatives revenue, all areas where we've been able to innovate and expand our value proposition for customers. In particular, we have seen significant improvement in our European Clearinghouse, where growing membership is driving increased activity, resulting in a revenue increase of 30% over the last year.

In the Nordic derivatives market, earlier this week, we launched our Genium INET platform, the world's fastest trading and clearing system. Genium delivered sub-100 microsecond latency and a throughput of over 1 million messages a second, a highly reliable robust and scalable platform.

In addition to powering our own markets is also part of our commercial exchange technology offering, putting the same power in the hands of our customers. We remain committed to innovation through technology to ensure our leadership position as a driving force in the exchange industry and to provide the best possible trading opportunities for our customers and investors.

In our U.S. Options business, we are number one in market share, and we achieved our fifth consecutive quarter of market share growth. Total market share was 28.8% for the quarter, as PHLX recorded 23.7% and now 5.1%, the highest levels ever achieved by either market. Our share last year across both markets was 20.2%, so this year's results reflect the gain in share of 850 basis points. Very impressive.

In our Issuer Services segment, NASDAQ OMX signed 45 new listings during the quarter, an increase of 29% over the prior year quarter, of which 18 were IPOs including two of the largest technology IPOs, SMART Technologies and NXP Semiconductors. Corporate Services continued to be a bright spot, as we saw increased demand for many new products, in particular new services such as AI3, our new surveillance product. That is driving revenue growth.

When you exclude the impact of Carpenter Moore, which was sold in the fourth quarter of 2009, existing product revenues increased 20% from prior year levels. And finally, within the Issuer Services, revenues in our Global Index Group were up 20% from last year, driven by increased demand for new license ETFs and other financial products.

In our industry leading Market Technology segment, business remain strong as total order value, which is the value of signed contracts that have yet to be delivered ended the quarter up 40% from third quarter 2009 levels. Highlighting the quarter was the acquisition of SMARTS Group, the world leading provider of market surveillance technology to exchanges, regulators and brokers. Integration efforts are off to a good start, and we expect to realize measurable synergies by leveraging our footprint to deliver growth. Our technology platforms remained core to our success. We have the fastest and most scalable trading technology in the world, multi-asset trading and clearing capabilities, and a culture of efficiency. When combined, these assets create a unique formula for success that remains unparalleled in the industry.

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