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The NASDAQ OMX Group, Inc. (NDAQ)

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Nasdaq OMX Group (NDAQ)

Q4 2012 Earnings Call

January 31, 2013 8:00 am ET

Executives

John Sweeney

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

Lee Shavel - Chief Financial Officer and Executive Vice President of Corporate Strategy

Edward S. Knight - Chief Regulatory Officer, Executive Vice President and General Counsel

Analysts

Howard Chen - Crédit Suisse AG, Research Division

Edward Ditmire - Macquarie Research

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

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

Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Jillian Miller - BMO Capital Markets U.S.

Christopher J. Allen - Evercore Partners Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the NASDAQ OMX Fourth Quarter and Full Year End 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference may be recorded. It's now my pleasure to turn the time over to John Sweeney, Vice President of Investor Relations for NASDAQ OMX. Sir, the floor is yours.

John Sweeney

Good morning, everyone, and thank you for joining us today to discuss NASDAQ's OMX's Fourth Quarter and Full Year 2012 Earnings Results. On the line are Bob Greifeld, our CEO; Lee Shavel, CFO; Ed Knight, General Counsel, and other members of the management team. After prepared remarks, we'll open up to Q&A. The press release and the presentation are on our website. We intend to use the website as a means of disclosing material non-public information and complying with disclosure obligations on SEC Regulation FD.

I'd like to remind you of certain statements in this presentation and during 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. Actual results may differ materially from those projections. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and periodic reports filed with the SEC.

I'll now turn the call over to Bob.

Robert Greifeld

Thank you, John. Good morning, everyone, and thank you for joining us today on this call to discuss NASDAQ OMX's Fourth Quarter and Full Year 2012 Earnings Results. I am pleased to note that we're doing the call from Stockholm, where we are celebrating the 150th anniversary of the Stockholm Stock Exchange and joining with me here is Hans-Ole Jochumsen, the Head of the European business, and obviously, other members of the management team.

When we look back at 2012 for NASDAQ, one word comes to mind: resiliency. In a year that was challenging for everyone, where we encountered market challenges, weak demand, political turmoil and even hurricanes, we never stopped executing on our business plan. The results we announced earlier this morning clearly demonstrate not only the resiliency, but the diversity and the strength of our business model. Let me start by giving you of a few key highlights of our fourth quarter, then I want to talk a little about how we got there.

Fourth quarter non-GAAP revenues of $419 million was the highest of 2012. Recurring and subscription revenues accounted for 71% of total fourth quarter revenues, tied for the highest level in NASDAQ OMX's history. We delivered non-GAAP diluted EPS of $0.64, tied for the second highest quarterly performance in the firm's history. We finished the year with an exit run rate of $50 million in annualized expense savings, which I'll talk more about later.

While we're pleased with these results, given the difficult times, by no means are we satisfied. We have yet to demonstrate the full earnings power of this franchise. One of the drivers that has made our model so successful over the past few years is the diversity of our business. Corporate Solutions led the way, an effort we undertook 6 years ago and built from the round up. Corporate Solutions revenues were $31 million in the fourth quarter, up an impressive 55% compared to a $20 million in the fourth quarter of last year, with strong 25% year-on-year revenue growth from our core products and services.

Our success in diversifying our business model was also driven by our ability to create adjacent opportunities in our core business areas, many of which are non-transaction based and rooted in innovative technologies and software. Let me be clear, however, we love our Transaction businesses. We are leaders and execute exceptionally well in these areas. However, that love has never stopped us from looking for ways to: one, diversify our revenue portfolio; two, better serve our customers; and three, pursue adjacent growth opportunities.

These opportunities have included a suite of solutions that cover the entire trading life cycle to our members. We continue to benefit, as we bring innovative data products and market system software and services to meet the needs of our customers and power their businesses throughout the world. We grew Access Services revenue 7% in the fourth quarter of 2012, compared with the fourth quarter of last year, and the Global Index Group increased by 8%. We continue to see good traction for our SMARTS Broker surveillance and risk management tools. We continue to make progress in our Market Technology business, which had exceptionally strong performance in the fourth quarter, delivering new business wins totaling $95 million.

We were also pleased to close our first acquisition, the Global Index Group, in the fourth quarter, a leading player in dividend indexing. In contrast to most domestic equity mutual funds, which have experienced outflows over the past 3 years, inflows into equity income funds or dividend-focused funds have increased in that same time period, a factor that we believe bodes well for the future growth of this business. With this acquisition, the Global Index Group is one of the largest provider of dividend-themed indexes and further enhances our custom index offering capabilities.

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