Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nasdaq Inc (NDAQ, Financial) reported a strong quarter with $1.2 billion in net revenues, an increase of 10% year over year.
- The company's annualized recurring revenue (ARR) grew 7% to $2.7 billion.
- Nasdaq Inc (NDAQ) achieved a 14% growth in operating income and an operating margin increase to 53%.
- The index business delivered another exceptional quarter with $17 billion of net inflows during the quarter, totaling $53 billion over the last 12 months.
- The financial technology division saw ARR growth of 13%, including 25% in financial crime management technology and 14% in the combined AxiomSL and Calypso solutions.
Negative Points
- The slower IPO environment remains a headwind, despite signs of improvement.
- Growth in data and listings continues to experience challenges due to the impact of prior-year delistings.
- The workflow and insights revenue growth was muted due to continued headwinds in corporate solutions.
- Operating expenses for the quarter increased 7% year over year.
- The market services division experienced a 1-percentage-point decline in operating margin due to continued investments in market modernization and regulatory obligations.
Q & A Highlights
Q: Within financial crime management, you highlighted price increases as a contributor to growth. Can you talk about pricing more generally across your businesses and what price contributed to the strong growth in the quarter across various segments?
A: Price increases vary by product and contract structure. For AxiomSL and Calypso, about half of revenue growth comes from upgrades and upsells, and the other half from new sales and price changes. Some contracts have CPI increases, while others see price hikes upon renewal based on increased value or client growth.
Q: You mentioned that 10% of the pipeline is made up of cross-sell opportunities. Can you discuss the use cases you're seeing early within the cross-sell and how those dialogues are progressing?
A: We had four cross-sells this quarter, including selling AxiomSL to Calypso clients, driven by strong client relationships and regulatory obligations. We also have campaigns targeting exchange clients for collateral management and Verafin clients for treasury management and regulatory reporting. These efforts are generating strong top-of-funnel interest.
Q: Can you help frame the revenue opportunity from the momentum you're seeing at Adenza, including upsells and new client signings?
A: The best measure is ARR, which reflects the annualized contract value of new sales. ARR growth across fintech was 13%, providing a predictive effect on future subscription revenue. Professional services revenue grows more slowly, but overall, ARR is a good indicator of business health.
Q: On Verafin, can you discuss the opportunity set and revenue contribution from international markets as you push further into that market?
A: The revenue contribution from Tier 1 and Tier 2 banks is still small as we are in the early stages of signing and implementing new clients. Implementation times range from six months to a year. We are focused on payments fraud and international payments fraud, particularly in Canada and the UK.
Q: Can you clarify your expectations for the IPO environment for the rest of this year and when you expect it to show up in the financials?
A: We expect a modest improvement year over year in the IPO environment. While we are seeing some activity, a lot of companies, particularly in the technology space, are targeting the first half of 2025 for their IPOs. Positive economic momentum could open the door for more IPOs in the fall.
Q: On index options, you're seeing strong momentum. Can you update us on the broader vision for index options at Nasdaq and your approach to pricing?
A: We are excited about the growth in index options, particularly the Nasdaq-100. It is a premium product due to its hedging capabilities, and demand remains strong. We are considering additional indexes to bring into our options franchise and will continue to work on educational efforts and analytics to support client adoption.
Q: Can you explain the early strategic renewal in Calypso and its impact on ARR and revenue?
A: Early renewals are not unusual and reflect strong client relationships. ARR is a better reflection of business health and stability. The early renewal, along with new clients and upsells, contributed to strong revenue in the quarter. Over time, ARR provides a more consistent view of growth.
Q: Can you discuss the impact of AI initiatives like Dynamic M-ELO on market share and financials, and how difficult it is for competitors to launch similar products?
A: Dynamic M-ELO is a specialized order type that offers a premium product with higher fill rates at the midpoint. It is more of a revenue opportunity than a market share driver. Replicating it is complex due to the fine-tuning required, making it difficult for competitors to match.
Q: How could Verafin fare in different macro environments, and is there any reason to worry if the macro environment turns?
A: Verafin provides mission-critical technology for managing risk, regulatory obligations, and financial crime, which are durable demand drivers. The total market opportunity is large, and our solution is unique. We see continued strong demand globally, making it resilient in various economic conditions.
Q: Can you comment on the potential for Nasdaq to sell existing businesses, given the news about Solovis?
A: We regularly review our capital allocation and business fit. While we won't comment on specific rumors, we make decisions based on strategic fit and client needs. Our Nordic business, for example, is highly strategic due to its innovation ecosystem and contributions to our broader technology business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
