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The NASDAQ OMX Group, Inc. (NDAQ)

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Nasdaq OMX Group (NDAQ)

Q1 2011 Earnings Call

April 20, 2011 8:00 am ET

Executives

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

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

Eric Noll - Executive Vice President of Transaction Services - US and UK

Ronald Hassen - Interim Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Controller

Analysts

Brian Bedell - ISI Group Inc.

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

Alex Kramm - UBS Investment Bank

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

Rob Rutschow - Credit Agricole Securities (USA) Inc.

Michael Carrier - Deutsche Bank AG

Richard Repetto - Sandler O`Neill

Howard Chen - Crédit Suisse AG

Christopher Harris - Wells Fargo Securities, LLC

Daniel Fannon - Jefferies & Company, Inc.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Matthew Heinz - Jefferies & Company

Roger Freeman - Barclays Capital

Daniel Harris - Goldman Sachs Group Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the NASDAQ OMX First Quarter 2011 Results Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Vince Palmiere, Vice President, Investor Relations. Please go ahead.

Vince Palmiere

Thank you, operator. Good morning, everyone, and thank you for joining us today to discuss NASDAQ OMX's first quarter 2011 earnings results. Joining me are Bob Greifeld, our Chief Executive Officer; Ron Hassan, our interim 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 results 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 nonpublic information and for complying with disclosure obligations under SEC Regulation FD, and these disclosures will be included under the Events and Presentations section of our site.

Before I turn the call over to Bob, I would like to remind you that certain statements in our 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. These actual results may differ materially from those projected in these forward-looking statements. Information containing factors that could cause actual results to differ from our 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 call over to Bob.

Robert Greifeld

Thank you, Vincent. Thank you for joining us on this call this morning. I'll begin by spending a few minutes highlighting first quarter 2011 results and then update you on the status of our joint proposal to acquire NYSE Euronext. Ron will then walk you through the financials in detail.

On a non-GAAP basis, we delivered very strong results as net revenues for the quarter reached $415 million; net income was $110 million; and diluted earnings per share on a non-GAAP basis came in at a record $0.61, 11% above our previous record high and 42% above our first quarter of 2010 non-GAAP results.

This performance was driven by solid results in all our businesses as each delivered material increases in revenues despite a challenging macroeconomic climate. Our disciplined approach to managing the business has yielded top line expansion, revenue grew from $360 million to $415 million year-on-year, improvement in our operating margins and growth in profits as we continue to deliver for our shareholders.

Now turning to the details of the quarter. In Market Services, revenue increased $40 million or 17% from the first quarter of 2010. Year-on-year growth in revenue was driven by strength across all our Transaction and Access Services businesses. NASDAQ OMX was again #1 in equity options market share. The combined market share of PHLX and NOM grew to 29% from 24% in the year-ago period. Also volumes have increased significantly. This increased activity and market share drove our U.S. equity derivatives revenue up to an impressive 45% over the first quarter of 2010.

Within Access Services, revenues grew 36% over the same period, driven by an increased demand for services. Also contributing to the growth is the addition of FTEN, the low-latency, free trade risk management product that we acquired in December.

Moving on to our Issuer Services business segment. Revenues grew on the strength in demand for our Corporate Solutions, which were up 29% from the first quarter of 2010, while our Global Index Group had revenue growth of more than 40% from the lows realized during the financial crisis.

In Market Technology, during the first quarter, the Osaka Securities Exchange, the largest derivatives exchange in Japan, successfully launched its new derivatives trading system using NASDAQ OMX technology, while revenues for the Business segment showed solid performance, growing 26% from the first quarter of 2010.

In summary, results for the quarter were very impressive as strong revenue growth across all our businesses drove earnings higher. As we pursue our joint proposal for NYSE Euronext, we must not become distracted from achieving many of the strategic objectives that we committed to in 2011. Our goal remains to lever our innovative culture to drive growth, and we will achieve these goals by ensuring that our team remains focused on the task at hand.

The integration efforts for FTEN and SMARTS are progressing well, and we continue to see a lot of interest from the exchange community in leveraging our compliance and risk management solutions. Our goal remains to provide customers with FTEN's powerful pre-trade risk and broker compliance solutions that are complemented by SMARTS' leading broker compliance solution.

In our Derivatives business, we plan to continue to expand our capabilities within equity options. In the first quarter, we introduced enhancements to the complex order system in PHLX, thereby expanding the market share for orders in which we can compete. This past Monday, we began trading options on our Alpha Indices starting with Alpha versus a SPDR Index. At N2EX, following the first-quarter launch of our financial derivatives product, NASDAQ OMX Commodities signed up 2 market makers for the U.K. power futures contract. When combined with the success of our spot market, N2EX is now set to become the integrated market platform that we set out to create.

Before I turn the call over to Ron, I do want to spend a few minutes obviously talking about the bid for NYSE Euronext. Now when we step back and look at this quarter, we see that this quarter continues a long line of successful quarters, and I believe it is worthwhile to gain some perspective from our performance over the 4 years of 4 quarters and how that informs our thinking with respect to the bid. Since our achievement of $0.33 per share in the first quarter of 2007, our income has grown 84.8%. Our peers in this space, with the exception of ICE, had their high watermark for earnings in the first quarter of 2008. And we see that over the 4-year period of time, through the end of the fourth quarter of 2010, our peers had, for example, earnings increase of 12% over that period of time at CME, Deutsche Boerse declined by 16%, NYSE declined by 23% and ICE increased by 69%.

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