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NYSE Euronext (NYX)

Q2 2011 Earnings Call

August 02, 2011 8:00 am ET

Executives

Michael Geltzeiler - Chief Financial Officer and Group Executive Vice President

Thomas Callahan - Head of US Futures and Executive Vice President

Lawrence Leibowitz - Chief Operating Officer

Dominique Cerutti - President, Deputy Chief Executive Officer, Head of Global Technology and Director

Duncan Niederauer - Chief Executive Officer and Director

Stephen Davidson - Vice President of Investor Relations

Analysts

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

Johannes Thormann - HSBC

Alex Kramm - UBS Investment Bank

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

Howard Chen - Crédit Suisse AG

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

Christopher Harris - Wells Fargo Securities, LLC

Daniel Harris - Goldman Sachs Group Inc.

Roger Freeman - Barclays Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 NYSE Euronext Earnings Conference Call. My name Chanel, and I will be your operator for today. [Operator Instructions] I would now like to turn the call over to Stephen Davidson, Head of Investor Relations at NYSE Euronext. Please go ahead, sir.

Stephen Davidson

Thank you, Chanel. Good morning, and welcome to the NYSE Euronext Second Quarter 2011 Earnings Conference Call.

Before I introduce today's speakers, let me remind you that comments on the call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on NYSE Euronext's current expectations and involve risks and uncertainties that could cause NYSE Euronext's actual results to differ materially from those in the statements. These forward-looking statements speak as of today, and you should not rely on them as representing our views in the future. Please refer to our SEC filings for a full discussion of the risk factors that may affect any forward-looking statements. Except for any obligation to disclose material information under the federal securities laws, NYSE Euronext undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after this conference call.

We will discuss non-GAAP financial measures during this call. These non-GAAP measures are fully reconciled in the tables attached to the text of the earnings press release that we issued earlier today. We believe that these tables provide investors useful information about our business trends. However, our non-GAAP measures do not replace and are not superior to GAAP measures.

For the call today, Michael Geltzeiler, Chief Financial Officer will review the financial results for the quarter; Tom Callahan, CEO of NYSE Liffe U.S. will then provide an update on the launch of interest rate products on our U.S. futures exchange, Duncan Niederauer, Chief Executive Officer, will conclude with some comments on the businesses and provide an update on the business combination with Deutsche Boerse. We will then open the line for your questions. [Operator Instructions] We are incorporating slides for the call today which are available for viewing on our website, and Mike, Tom and Duncan will refer to these slides during their remarks.

With that, let me now turn the call over to Mike.

Michael Geltzeiler

Good morning, everyone, and thank you for joining today's call. I'm pleased to share our second quarter 2011 results with you. Characterized by increasing revenue diversification, disciplined cost control and strong capital management.

For the quarter, we recorded EPS of $0.61 per share, a net revenue of $661 million, down from $0.64 per share or $664 million in net revenue in the prior year period.

You'll recall that Q2 2010 trading volumes benefited from a strong spike in volatility from the advent of the sovereign debt crisis in Europe, as well as the flash crash in the U.S. Strong non-volume-related revenue combined with the weakening of the dollar year-over-year increased our net revenue by $51 million, helping to more than offset the impact of declines in trading volumes across most of our venues.

In particular, note during the quarter, our Technology Services business increased revenue by 14% and registered operating margins of 30%. On the expense front, we continue to show cost managing discipline. Our expenses increased $12 million or 3% to $419 million. On a constant currency and portfolio basis, our expenses declined 3% or $14 million compared to the second quarter of 2010. Global headcount is below 3,000 despite completing several smaller deals since the middle of last year, including the acquisition of Corporate Board Member and the joint venture with APX to create NYSE Blue.

The strong free cash flow in the second quarter, we retired $200 million in commercial paper which reduced our debt EBITDA leverage ratio to 1.7x, the lowest level since the merger of NYSE and Euronext.

A significant contributor to our free cash flow has been the reduction in capital expenditure, which were $31 million in Q2, down from $70 million in the prior year period.

So in summary, our results were solid year-over-year against the backdrop of an average of 17% decline in trading volumes across our 4 primary venues.

Slide 4 provides comparative GAAP results for the second quarter of 2011. For the quarter, net income and EPS were below prior year, but in line with the first quarter of 2011. Second quarter 2010 results benefited from a net $54 million pretax gain from disposal activity, principally the sale of our 5% stake in the National Stock Exchange of India.

This quarter, we reported an $18 million charge for merger expenses and exit costs, which included $12 million related to our pending business combination. Year-to-date, a total of $27 million has been spent on the pending merger.

Read the rest of this transcript for free on seekingalpha.com