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The NASDAQ OMX Group, Inc. (NDAQ)

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The Nasdaq OMX Group (NDAQ)

Q3 2013 Earnings Call

October 23, 2013 8:00 am ET

Executives

Ed Ditmire

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

Analysts

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

Howard Chen - Crédit Suisse AG, Research Division

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division

Kenneth Hill - Barclays Capital, Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Michael Carrier - BofA Merrill Lynch, Research Division

Jillian Miller - BMO Capital Markets U.S.

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

Christopher Harris - Wells Fargo Securities, LLC, Research Division

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

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the NASDAQ OMX Third Quarter 2013 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to Ed Ditmire, NASDAQ's Vice President of Investor Relations. Please go ahead, sir.

Ed Ditmire

Good morning, everyone, and thanks for joining us today to discuss NASDAQ OMX's third quarter 2013 earnings results. On the line are Bob Greifeld, our CEO; Lee Shavel, our CFO; Ed Knight, General Counsel; and other members of the management team. After prepared remarks, we will open up to Q&A.

The press release and presentation are on our website. We intend to use the website as a means of disclosing material nonpublic information and complying with disclosure obligations under SEC Regulation FD.

I'd like to remind you that 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 these 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 now will turn the call over to Bob.

Robert Greifeld

Thank you, Ed, and good morning, everybody, and thank you for joining us today. We are very pleased to announce a very strong third quarter. And what is noteworthy, this is the first time our acquisitions of eSpeed and Thomson Reuters' IR, PR and Multimedia businesses are fully incorporated in our results. You can see our mix of business is evolving, and we have set a new revenue and operating profit baselines.

In the third quarter 2013, revenues reached a record $506 million, driven largely by our Technology Solutions segment, now a $524 million annualized revenue business, as well as our Information Services segment, which set a new high with $472 million in annualized revenue. In addition, with the inclusion of eSpeed, 2/3 of the transaction-based revenue in our Market Services segment now comes from derivatives and fixed income products, with 1/3 now coming from equity trading, a pretty remarkable transformation. Looking at the bottom line, on a non-GAAP basis, third quarter EPS of $0.66 was up 6% over the year -- the prior year with $0.62. Our non-GAAP operating income was up 12% year-on-year.

We are on a good course, and we are seeing positive momentum in a continuing difficult environment. We are executing our strategy, and we are in progress and making progress against our targets and objectives we've outlined on our recent calls. This quarter provides further evidence that our strategy to leverage our technology and customer relationships to build profitable businesses, which deliver attractive returns for our shareholders, is working. Our objective is to become an entrenched provider of a diversified portfolio of services to the financial and investment community. When we think about our strategy and objectives, clearly, the integration of eSpeed and the IR, PR and Multimedia businesses of Thomson Reuters are important to these efforts. We're making good progress with each of these, and I'll come back to this later.

I want to turn to some of the broad business highlights that defined our quarter and the results we delivered. Our core listing business continue to demonstrate that our value proposition to issuers is compelling. With a recent high of a 59% IPO win rate in what has been a very busy quarter in terms of new issue activity, with activity through the first 9 months of 2013 the highest since 2007, we're obviously pleased about that. We also are having one of our best years on the IPO front, and most recently, we won several high-profile IPOs, including Rocket Fuel, FireEye, Potbelly Sandwiches, Sprouts Farmers Market and RetailMeNot. And just a few weeks ago, we won one of the largest switches of the year in Marriott, a $12-billion market cap company. And in addition to that, Fairchild Semiconductor, another billion-dollar-plus company which chose to switch to NASDAQ from our competitor.

What you are seeing in many of our core businesses is a microcosm of our diversification strategy implemented at the corporate level, and there is no better representation of that than our Global Index business. We saw a strong revenue growth in both our index licensing business, which grew 20% and, the first time, has more than half of its licensed AUMs and products other than the queues. Our Market Data business grew 19% due to a combination of organic revenue growth led by NASDAQ Basic, the inclusion of eSpeed market data and higher audit collections.

In our Market Technology business, within our Technology Solutions segment, we had several key wins right in the quarter that featured record new order intake and pushed the backlog to record highs. These include Borsa Istanbul, who, in addition to supplying them with our leading technology, we are forming a strategic partnership to help them expand their global presence. Other notable market tech wins include Boerse Stuttgart and Tadawul, which is the Saudi Stock Exchange. Overall organic revenue growth for the company was 4% year-on-year, and we saw organic growth in all 3 of our nontrading segments.

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