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Nasdaq OMX Group (NDAQ)

Q4 2010 Earnings Call

February 02, 2011 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

Brian Bedell - ISI Group Inc.

Chris Allen - Banc of America Securities

Alex Kramm - UBS Investment Bank

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

Rob Rutschow - Credit Agricole Securities (USA) Inc.

Michael Carrier - Deutsche Bank AG

Jillian Miller - BMO Capital Markets

Richard Repetto - Sandler O`Neill

Howard Chen - Crédit Suisse AG

Christopher Harris - Wells Fargo Securities, LLC

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Matthew Heinz - Jefferies & Company

Roger Freeman - Barclays Capital

Presentation

Operator

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

Vince Palmiere

Thank you, operator. Good morning, and thank you for joining us today to discuss NASDAQ OMX's fourth quarter and full year 2010 earnings results. Joining me are Bob Greifeld, our Chief Executive Officer; and Adena Friedman, our Chief Financial Officer.

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 our 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.

Before I turn the call over to Bob, I would 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 might differ materially from those projected in these forward-looking statements. Information concerning these 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.

With that, I'll turn it over to Bob.

Robert Greifeld

Thank you, Vince. And thank you, everybody, for joining us on this call this morning. Certainly, I appreciate your effort to get here on this rainy, icy day. I'll begin by spending a few minutes highlighting the fourth quarter 2010, then I will update you on the progress we are making with some of our initiatives. Adena will then walk you through the financial details.

On a non-GAAP basis, we delivered outstanding record results as non-GAAP diluted earnings per share came in at a record $0.55, 6% above our previous record and 20% above our fourth quarter 2009 non-GAAP results. Net revenues for the quarter reached $400 million while net income grew to $110 million, an 11% increase over results from the fourth quarter of 2009. This performance was driven by our global growth in derivatives and the strength of our European-based businesses and should be attributed to the diversification and globalization strategy that we embarked upon in 2007.

Over the last three years, we have made a successful transition from a U.S.-based cash equities exchange to a highly successful, multi-asset global franchise, with 37% of our total revenues now coming from outside of the U.S. and nearly 20% coming from derivatives, trading and clearing. As I walk you through these results, it will become very clear that many of these new businesses, including derivatives in the U.S. and Europe, global Market Technology, Access Services and corporate solutions all provided strong and sustainable revenue success in the fourth quarter throughout 2010, and is positioned to be an engine of our growth in the years to come.

During the year, we continued to invest in diversifying and globalizing our business. With the acquisition of SMARTS and FTEN, we can now provide a full suite of pre-trade and post-trade risk management solutions to broker-dealers, regulators and exchanges worldwide. As the market access rules ramp up in the U.S. and stronger risk management and compliance practices are implemented worldwide, SMARTS and FTEN are perfectly positioned to meet the needs of these rapidly growing market segments.

As an organization, overall, we are well positioned to continue to experience growth across all our businesses, and we believe that our fourth quarter results are a testament to the benefits of our model and our efforts over the past number of years.

Now turning to the details of the quarter. In Market Services, revenue increased $24 million or 10% from the fourth quarter of 2009. One significant milestone in the fourth quarter was the launch of the Genium INET trading platform, the world's fastest trading and clearing system in our Nordic equity derivatives market, as well as the launch of repo clearing in the Nordic clearinghouse. Overall, our Nordic Derivatives business experienced a 23% increase in revenues over the prior year quarter.

In the U.S., NASDAQ OMX was, again, the number one market in options. The combined market share of PHLX and NOM grew to 31%, while volumes jumped significantly. This increased activity and market share drove our U.S. derivatives revenue up an impressive 35% compared to the fourth quarter of 2009.

Finally within Market Services, responding to customer demand in the post-May 6 environment, we successfully launched PSX, our innovative price-size trading venue, which has captured approximately 1% of the market in a short period of time.

Moving on to our Issuer Services business segment. NASDAQ OMX signed 63 new listings during the quarter at a total of 220 new listings throughout 2010, including 100 IPOs. NASDAQ OMX continue to dominate the Greater China area with 43 new listings in 2010. One notable Chinese listing in the fourth quarter was Suntech Energy, which was the largest Chinese energy IPO in 2010. We also captured the largest financial company that completed an IPO on the U.S. market in the fourth quarter. LPLA Investment Holdings, based in Boston, that raised over $469 million in proceeds.

Finally, within Issuer Services, corporate solutions continues to deliver innovative product and services that enables issuers to meet the requirements of being a public company while simultaneously deepening our relationship with these issuers. That has resulted in strong revenue growth, up 29% year-over-year.

Our Global Index Group also had an outstanding year as revenues were up over 20% from last year, driven by increased demand for new licensed ETFs and other financial products. In our industry-leading Market Technology business, we finished the year strong as fourth quarter revenues reached their highest levels ever. The Australian Stock Exchange went live with the Genium INET platform, capping off a very strong quarter for the business.

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