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Nasdaq OMX Group (NDAQ)

Q2 2011 Earnings Call

July 27, 2011 8:00 am ET


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

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


Brian Bedell - ISI Group Inc.

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

Matthew Heinz - Stifel, Nicolaus & Co., Inc.

Alex Kramm - UBS Investment Bank

Edward Ditmire - Macquarie Research

Rob Rutschow - Credit Agricole Securities (USA) Inc.

Michael Carrier - Deutsche Bank AG

Howard Chen - Crédit Suisse AG

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

Jillian Miller - BMO Capital Markets U.S.

Daniel Fannon - Jefferies & Company, Inc.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Christopher Allen - Evercore Partners Inc.

Roger Freeman - Barclays Capital



Good day, ladies and gentlemen, and welcome to the NASDAQ OMX Second 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 of Investor Relations. Please go ahead, sir.

Vince Palmiere

Thank you, operator. Good morning, and thank you for joining us today to discuss NASDAQ OMX's second quarter 2011 earnings results. Joining me are Bob Greifeld, our Chief Executive Officer; Lee Shavel, our Chief Financial Officer; Ron Hassen, our Corporate Controller; and Ed Knight, our General Counsel.

Following our prepared remarks, we'll open up the line for Q&A. You can access the press release and presentation on 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 the disclosure obligations under SEC Regulation FD, and these disclosures will be included under the Events and Presentations section of the site.

Now 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. Actual results may differ materially from those projected in these forward-looking statements. Information containing 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 it over to Bob.

Robert Greifeld

Thank you, Vince, and thanks, everyone for joining the call this morning. I'll begin by spending a few minutes highlighting our second quarter 2011 results, then update you on our plans going forward. Lee will then walk you through the detailed financials.

The second quarter of 2011 was a solid one for us as net revenues reached $416 million. Our non-GAAP net income was $112 million and diluted earnings per share came in at $0.62, 19% above our second quarter of 2010 non-GAAP results. These results again demonstrate the resiliency of our business model as earnings per share grew to another record high. This was accomplished by the strength of our top line as net revenues grew for the third consecutive quarter and are up 11% for the first half of the year when compared to the same period last year.

With a sharp eye on execution, we've achieved double-digit growth in net revenues during a time when ongoing economic uncertainty has created a challenging environment for many of our volume-related businesses.

When we hosted our Analyst Day in September of last year, we communicated a revenue goal of generating a 3-year compounded average growth rate of 9% while maintaining comps and operating margins. As I sit here today, it gives me satisfaction to report that we remain on track to accomplish this goal. This, despite the fact that our commitment of 9% was based upon an assumption of 9 billion to 10 billion shares average daily volume in the U.S. equity market. So far this year, we have averaged a little more than 7.5 billion shares per day.

Our performance shouldn't come as a surprise to anyone that closely follows our business since over the years, we've demonstrated our ability to grow earnings. On Slide 5 of our presentation, you can see that our earnings have increased impressively over the past 4 years. Non-GAAP earnings per share for the first half of the year was $1.23, up more than 80% from pro forma non-GAAP results from the first half of 2007, reflecting a compound average growth rate of 16%. We are proud of these results and the fact that they're accomplished by both organic growth and acquisition initiatives. Our results also stack up very nicely when compared with the growth achieved by our peer group.

Now turning to the details of the quarter. In Market Services, revenue increased $7 million when compared to the second quarter of 2010. While U.S. Cash Equities revenues declined due to a 30% reduction in industry volumes, we're able to more than offset this growth in -- with growth of Access Services, U.S. derivatives, Market Data and European derivatives revenue.

Within Access Services, revenue grew 34% over the second quarter of 2010, driven by increased demand for services and the addition of FTEN, the low-latency pre-trade risk management product that we acquired in December. The integration of this business is proceeding nicely and supports our strategy of growing beyond the match, which I'll speak to in a minute.

In options, NASDAQ OMX continued its success as the #1 in market share during the second quarter of 2010, the fourth consecutive quarter that we achieved this distinction. Combined market share for PHLX and NOM improved to 28.9% as the number of contracts traded increased by 15%. This continues to be one of our most successful businesses as revenues have grown 26% in the 3 years since we closed the PHLX transaction, while market share has improved by nearly 12 percentage points.

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