Fourth quarter 2012 non-GAAP diluted EPS of $0.64, tied for the second highest quarterly performance in the firm's history; fourth quarter 2012 GAAP diluted EPS of $0.50
Fourth quarter net exchange revenues1 reach $419 million, the highest non-GAAP net exchange revenue level of the year. On an organic basis (constant currency and excluding acquisitions) fourth quarter revenue declined by 3 percent year-over-year
Non-transaction based revenues were 71 percent of fourth quarter net exchange revenue, tied for the highest level in NASDAQ OMX's history
2012 non-GAAP operating expenses of $918 million came in below previous guidance range of $922 to $935 million
Repurchased 11.5 million shares at an average price of $23.82 for a total cost of $275 million in 2012
The NASDAQ OMX Group, Inc. (Nasdaq: NDAQ) today reported results for the fourth quarter and full year 2012. Fourth quarter net exchange revenues were $419 million, driven by particularly strong growth in our Corporate Solutions business.
Operating expenses were $244 million in the fourth quarter of 2012, compared to $259 million in the prior year quarter. On a non-GAAP basis, fourth quarter 2012 operating expenses were $233 million, flat compared to the prior year quarter.
Fourth quarter 2012 non-GAAP diluted earnings per share were $0.64, up $0.01 compared to the prior year quarter. Non-GAAP earnings per share in the fourth quarter of 2012 exclude $8 million of restructuring expenses, $4 million of merger and strategic expenses, $3 million in sublease reserve expenses, $2 million of special legal expenses, and a $7 million value added tax refund related to prior year periods. On a GAAP basis, net income attributable to NASDAQ OMX for the fourth quarter of 2012 was $85 million, or $0.50 per diluted share, compared with $82 million, or $0.45 per diluted share, in the prior year quarter.
"NASDAQ OMX ended 2012 with a strong finish to the year, driven by a significant pick-up in corporate activity coupled with solid performance in our U.S. options, U.S. proprietary data products and global index businesses," said Bob Greifeld, CEO, NASDAQ OMX. "While the volume environment remained weak in the fourth quarter, we continued to expand our diversified, global portfolio of businesses, increasing our stream of recurring revenues, generating strong cash flows and delivering attractive returns for our shareholders."
Mr. Greifeld continued, "Looking to 2013, we are encouraged to see positive, multi week inflows from retail investors into U.S. equity mutual funds and some signs of improvement in the volume environment. As we move through the year, we will remain focused on strengthening our franchise by ensuring we have the talent, structure and business portfolio to deliver for our clients and shareholders. I believe we are creating the foundation for growth and outperformance regardless of the economic, business or volume cycles."
Lee Shavel, NASDAQ OMX's EVP and Chief Financial Officer, said: "Our cost reduction plan was successful and we exited the year with $50 million in run-rate savings. In 2012 we generated in excess of $500 million in free cash flow, and we continued to deploy our cash flow in ways that benefit our investors. During the year, we returned $275 million to shareholders through buybacks, $65 million through our dividend program, and we purchased a number of attractive assets, including BWise, NOS and the index business of Mergent, Inc., including Indxis. We also recently announced the proposed acquisition of Thomson Reuters' Investor Relations, Public Relations and Multimedia Solutions businesses. I fully expect these acquisitions, coupled with our ongoing capital deployment efforts to drive substantial shareholder value in the years ahead."
At December 31, 2012, the company had cash and cash equivalents of $497 million and total debt of $1,976 million, resulting in net debt of $1,479 million. This compares to net debt of $1,611 million at December 31, 2011. During the fourth quarter of 2012, the company repurchased 2.1 million shares of outstanding common stock under a share repurchase program, for a total of $50 million. Since January 2010, NASDAQ OMX has repurchased $1,172 million of outstanding common stock, representing 53.4 million shares at an average price of $21.97.
Market Services (64% of total net exchange revenues) - Net exchange revenues were $270 million in the fourth quarter of 2012, down $11 million when compared to the fourth quarter of 2011.
Cash Equities (11% of total net exchange revenues) – Total net cash equity trading revenues were $47 million in the fourth quarter of 2012, down $12 million compared to the fourth quarter of 2011. A lower level of industry trading volumes and a slightly lower market share were partially offset by positive revenue capture in both the U.S. and Nordic equity markets.
Derivatives (18% of total net exchange revenues) – Total net derivative trading and clearing revenues were $75 million in the fourth quarter of 2012, up $2 million compared to the fourth quarter of 2011. U.S. derivative revenues increased 10% year-over-year on market share gains and positive revenue capture per traded contract. European derivative and clearing revenues declined $2 million on lower volumes.
Access and Broker Services (15% of total net exchange revenues) – Access and broker services revenues totaled $65 million, up $4 million compared to the fourth quarter of 2011. The increase was primarily driven by the uptake of new products including 40G connectivity.
Market Data (20% of total net exchange revenues) – Total Market Data revenues of $83 million reflect a $4 million decrease compared to the year ago quarter. The decrease was driven by a lower level of audit collections and lower U.S. tape revenues.
Issuer Services (24% of total net exchange revenues) – Revenues were $101 million in the fourth quarter of 2012, up $10 million compared to the fourth quarter of 2011. The increase was driven by strength in the Corporate Solutions business which saw double digit revenue growth in the GlobeNewswire, Directors Desk and Surveillance businesses. In addition, Corporate Solutions revenues benefited from the acquisitions of BWise in May 2012 and Glide Technologies in October 2011. The Global Index Group's revenues increased by $1 million, or 8%, year-over-year driven by an increase in the underlying assets associated with licensed financial products due to product growth and newly executed product licenses.
Market Technology (12% of total net exchange revenues) – Revenues of $48 million in the fourth quarter of 2012 were flat compared to the fourth quarter of 2011. The Market Technology segment had exceptionally strong order intake of $95 million in the fourth quarter of 2012, rounding out a record year for new business wins.
Cost Guidance – For the full year of 2013, core operating expenses, including $50 million of expenses related to 2012 acquisitions, are expected to be in the range of $910 million to $930 million, with an additional $50 million to $60 million in incremental new initiative spending, resulting in total operating expenses in the range of $960 million to $990 million. This guidance excludes expenses related to our previously announced cost reduction plan, expenses for the proposed voluntary accommodation program and special legal expenses. We anticipate that the effective tax rate may increase in 2013, due to the potential loss of tax deductions resulting from changes in tax laws in certain jurisdictions. The impact of such tax law changes has not yet been determined. As a result, we expect a 2013 effective tax rate in the range of 34% to 37%.
Agreement to Acquire Thomson Reuters' IR, PR and Multimedia businesses. Announced agreement with Thomson Reuters to acquire the Investor Relations, Public Relations and Multimedia Solutions businesses, which provide insight, analytics and communications solutions to more than 7,000 clients worldwide. Upon completion of the transaction, these complementary businesses will be integrated into NASDAQ OMX Corporate Solutions. The combination, which is subject to customary regulatory approvals, will create a global corporate services portfolio, with more diversified and comprehensive offerings to sell to NASDAQ OMX's listing and corporate clients.
Acquired the Index Business of Mergent, Inc., including Indxis. Announced and closed on the first acquisition in the Global Index Group - the index business of Mergent, Inc., including Indxis. With this acquisition, the Global Index Group is one of the largest providers of dividend-themed indexes based on benchmarked assets.
Appointment of Chief Information Officer. Appointed Bradley Peterson as Executive Vice President and Chief Information Officer. Mr. Peterson joins NASDAQ OMX from Charles Schwab. He will focus on driving the design and development of scalable and reliable solutions to further the growth and expansion of core products and services and underlying tools and technologies used by NASDAQ OMX customers.
Combination of Market Technology and Corporate Solutions businesses. Announced the combination of the Market Technology and Corporate Solutions businesses, which will operate under the name Global Technology Solutions and will be led by Anna Ewing, Executive Vice President, Global Technology Solutions. The combination will enable increased focus, drive growth across the company's technology businesses and create a dedicated software and technology management structure.
Combination of Global Data Products and Global Index Group businesses. Announced the combination of the Global Data Products and Global Index Group businesses, which will operate under the name Global Information Services and be led by John Jacobs, Executive Vice President, Global Information Services. The combination will enable greater customer focus and leverage of NASDAQ OMX's scalable technology, product innovation and robust distribution channels.
1 Represents revenues less transaction rebates, brokerage, clearance and exchange fees.