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Nasdaq Reports Record-Matching Third Quarter 2014 Non-GAAP Net Income and Non-GAAP EPS

  • Generated third quarter 2014 non-GAAP diluted EPS of $0.72, matching the prior record, a 9% increase year-over-year. Third quarter 2014 GAAP diluted EPS was $0.71.
  • Third quarter 2014 net revenues1 were $497 million, down 2% year-over-year. Non-transaction based revenues were 74% of our total third quarter 2014 net revenues.
  • Non-GAAP operating expenses were $284 million in the third quarter of 2014, down 7% year-over-year.
  • Non-GAAP operating margin was 43% in the third quarter of 2014, up from 40% in the third quarter of 2013.
  • Reduced non-GAAP operating expense guidance for 2014, to $1,205 - $1,225 million.
  • The company repurchased $62 million of stock since the beginning of the third quarter of 2014, bringing total repurchases to $156 million since the repurchase program was restarted in the second quarter of 2014.
  • A new $500 million stock repurchase authorization has been approved by the Board of Directors, bringing the total available authorization to approximately $560 million.

The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) today reported results for the third quarter of 2014. Third quarter net revenues were $497 million, down 2% from $506 million in the prior year period, driven in part by the impact of foreign exchange rates. On an organic basis, excluding the impact of foreign exchange rates, third quarter net revenues decreased 1% year-over-year.

The Board of Directors of The NASDAQ OMX Group, Inc. has declared a regular quarterly dividend of $0.15 per share on the company's outstanding common stock. The dividend is payable on December 26, 2014, to shareowners of record at the close of business on December 12, 2014. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Board of Directors.

"Nasdaq's unmatched contribution of stable, subscription and recurring revenues, and an unrelenting focus on efficiency helped deliver for our shareholders by matching non-GAAP EPS records and creating recent highs in non-GAAP operating margins," said Bob Greifeld, CEO, Nasdaq. "This was delivered against a backdrop of a seasonally slower period for Nasdaq across our businesses."

Mr. Greifeld continued, "Looking forward, the company has created substantial avenues of growth, and is better positioned than ever to take advantage of these opportunities. Over the past month, we have experienced a volatile macro backdrop that delivers opportunities for our clients across fixed income, equities and derivatives. This, coupled with our expanding set of services and solutions, as well as our fiscal discipline and strong competitive position, provides our management team confidence in the strength of our business model and efficacy of our strategic growth initiatives."

On a non-GAAP basis, third quarter 2014 operating expenses were $284 million, down 7% as compared to the prior year quarter, primarily the result of lower compensation and contract services expense. On an organic basis, third quarter 2014 non-GAAP operating expenses were down 6% compared to the prior year period. On a GAAP basis, operating expenses were $290 million in the third quarter of 2014, down 5% compared to $304 million in the prior year quarter.

Third quarter 2014 non-GAAP diluted earnings per share was $0.72, compared to $0.66 in the prior year quarter. Please refer to our reconciliation of GAAP to non-GAAP net income, diluted earnings per share, operating income and operating expenses included in the attached schedules.

On a GAAP basis, net income attributable to Nasdaq for the third quarter of 2014 was $123 million, or $0.71 per diluted share, compared with $113 million, or $0.66 per diluted share, in the prior year quarter.

"Our unwavering focus on profitability led to declines in expenses, offsetting revenue headwinds from a number of discrete, temporary factors," said Lee Shavel, EVP and CFO, Nasdaq. "These factors included foreign exchange, a significant decline in data audit collections, and certain planned revenue impacts in acquired businesses. We have lowered our full-year 2014 non-GAAP operating expense guidance to reflect recent management actions and other environmental factors."

Mr. Shavel continued, "On the capital front, we continued to repurchase stock with $156 million deployed since resuming our repurchases upon meeting our deleveraging target in the second quarter. In addition, the company's Board of Directors increased the buyback authorization to ensure the company can continue to deploy capital where it generates maximum returns."

The company repurchased 0.7 million shares, or $27 million of stock, in the third quarter of 2014 at an average price of $41.39. Thus far in October 2014, the company has repurchased an additional $35 million of stock.

The Board has authorized an additional $500 million of stock repurchases, which combined with approximately $60 million of unused authorization after the October repurchases to date, gives the company a total available authorization of approximately $560 million.

On September 30, 2014, the company had cash and cash equivalents of $286 million and total debt of $2,345 million, resulting in net debt of $2,059 million. This compares to net debt of $2,418 million at September 30, 2013.

 

1 Represents revenues less transaction rebates, brokerage, clearance and exchange fees.

Market Services (39% of total net revenues) - Net revenues were $194 million in the third quarter of 2014, down $6 million when compared to $200 million in the third quarter of 2013.

Derivatives (13% of total net revenues) – Total net derivative trading and clearing revenues were $66 million in the third quarter of 2014, down $5 million compared to the third quarter of 2013. European derivative trading and clearing revenues were down $2 million, due primarily to the impact of foreign exchange, while net U.S. derivative trading and clearing revenues were down $3 million, due to a decline in average capture rate, partially offset by higher industry volume.

Cash Equities (10% of total net revenues) – Total net cash equity trading revenues were $52 million in the third quarter of 2014, up $6 million compared to the third quarter of 2013. Net U.S. cash equity trading revenues were $6 million higher than the prior year quarter, resulting from higher market share and average capture, while European cash equity trading revenues were unchanged year-over-year, as higher market share was offset by the impact of foreign exchange.

Fixed Income (3% of total net revenues) – Total net fixed income trading revenues were $13 million in the third quarter of 2014, down $5 million from the third quarter of 2013 due to scheduled reductions in payments by a third-party eSpeed technology customer, as well as lower average capture and market share.

Access and Broker Services (13% of total net revenues) – Access and broker services revenues totaled $63 million in the third quarter of 2014, down $2 million compared to the third quarter of 2013, due in part to the impact of foreign exchange.

Information Services (23% of total net revenues) – Revenues were $114 million in the third quarter of 2014, down $3 million from the third quarter of 2013.

Market Data (19% of total net revenues) – Total market data revenues were $92 million in the third quarter of 2014, down $7 million compared to the third quarter of 2013, due to an $8 million decrease in audit collections and unfavorable foreign exchange, partially offset by higher revenues from Nasdaq Basic.

Index Licensing and Services (4% of total net revenues) – Index licensing and services revenues were $22 million in the third quarter of 2014, up $4 million from the third quarter of 2013. The revenue growth was largely a function of materially higher assets under management in licensed exchange traded products.

Technology Solutions (26% of total net revenues) - Revenues were $130 million in the third quarter of 2014, down $2 million from the third quarter of 2013.

Corporate Solutions (15% of total net revenues) – Corporate solutions revenues were $75 million in the third quarter of 2014, down $3 million from the third quarter of 2013. The corporate solutions revenue decline was due primarily to IR product pricing actions designed to compensate for subsidies previously provided to certain customers by a competitor, as well as maintain and promote broader customer relationships. Offsetting other declines in IR products was organic growth in press release distribution and the Directors Desk governance solution. 

Market Technology (11% of total net revenues) – Market technology revenues were $55 million in the third quarter of 2014, up $1 million from the third quarter of 2013. Growth was driven principally by SMARTS Broker and BWise expansion, which was partially offset by an unfavorable foreign exchange impact.

Listing Services (12% of total net revenues) – Revenues were $59 million in the third quarter of 2014, up $2 million compared to the third quarter of 2013 due to an increase in U.S. listing revenues primarily due to a 6% growth in the issuer base and higher new issue activity. European listing revenues were unchanged, as the increase in the issuer base was offset by the impact of foreign exchange rates.

UPDATED COST GUIDANCE – The company has lowered non-GAAP operating expense guidance to $1,205-$1,225 million, down from the prior $1,220-$1,250 million. Included in this non-GAAP operating expense guidance is an expected $30-$35 million in GIFT new initiative spending, down from a prior $30-$40 million estimate, and $1,175-$1,190 million in core non-GAAP operating expense, down from $1,190-$1,210 million.   

In October, Nasdaq Announced Leadership Appointments to Support Strategic Growth Initiatives. Lars Ottersgård and Nelson Griggs were promoted to Executive Vice President of the firm's Market Technology and Listing Services businesses, respectively. John Jacobs, EVP of Information Services, is retiring at year end after over 30 years at Nasdaq, and will continue to serve as a strategic advisor in 2015. Other leadership moves included Bruce Aust, who has been elevated to Vice Chairman, Listing Services, and Bob McCooey, who has taken on the development of a new global key account management program. These moves are designed to align leadership responsibility with areas of strategic growth potential, enabling the company to further broaden and deepen client relationships.

Nasdaq Led U.S. Exchanges for IPOs in Third Quarter of 2014. Nasdaq announced it welcomed 76 new listings in the third quarter of 2014, including 41 initial public offerings (IPOs), on The NASDAQ Stock Market (NASDAQ), to bring its total IPO count to 140 for 2014. This represents more IPOs than any other U.S. exchange and an 8% increase in IPOs compared to the same quarter last year. Approximately 62% of all U.S. IPOs, including over 50% of technology IPOs and 90% of healthcare IPOs, occurred on NASDAQ. Also, 89of venture capital-backed IPOs and private-equity backed listings occurred on NASDAQ.

Market Technology Continues Rolling Out its Solutions to Participants In Financial Markets Across the Globe. In the U.S., swap execution facility trueEX signed up for SMARTS Integrity. In the Nordics, insurance company Folksam purchased the BWise suite, and in the Middle East, Bahrain Bourse launched trading on the x-Stream platform. In addition, SMARTS was awarded 2014 Waters Rankings "Best Market Surveillance Provider" for the second year in a row by Waters Technology.

Strong Momentum in the Licensing of Exchange-Traded Products (ETPs). Nasdaq continues to diversify its licensed product offerings across asset classes and geographies with the launch of 11 new ETPs this quarter. Nasdaq licensed 6 fixed income ETPs and added a second licensed ETP in Korea, bringing the total number of countries with Nasdaq-licensed products to 27.

Nasdaq eSpeed Introduced U.S. Treasury Bills Trading. Nasdaq eSpeed successfully introduced U.S. Treasury Bills with notional average daily volume exceeding $4 billion and daily highs exceeding $10 billion. The introduction of TBills to the electronic market is intended to provide customers with efficient price discovery, established liquidity and all the same benefits as anonymous voice brokerages. In addition, the newly created electronic Roll functionality offers eSpeed customers the opportunity to efficiently transfer risk from one U.S. Treasury security to another without incurring market or legging risk.

Nasdaq (Nasdaq:NDAQ) is a leading provider of trading, exchange technology, information and public company services across six continents. Through its diverse portfolio of solutions, Nasdaq enables customers to plan, optimize and execute their business vision with confidence, using proven technologies that provide transparency and insight for navigating today's global capital markets. As the creator of the world's first electronic stock market, its technology powers more than 70 marketplaces in 50 countries, and 1 in 10 of the world's securities transactions. Nasdaq is home to more than 3,500 listed companies with a market value of over $8.8 trillion and more than 10,000 corporate clients. 

In addition to disclosing results determined in accordance with GAAP, Nasdaq also discloses certain non-GAAP results of operations, including, but not limited to, net income attributable to Nasdaq, diluted earnings per share, operating income, and operating expenses, that make certain adjustments or exclude certain charges and gains that are described in the reconciliation table of GAAP to non-GAAP information provided at the end of this release. Management believes that this non-GAAP information provides investors with additional information to assess Nasdaq's operating performance by making certain adjustments or excluding costs or gains and assists investors in comparing our operating performance to prior periods. Management uses this non-GAAP information, along with GAAP information, in evaluating its historical operating performance.

The non-GAAP information is not prepared in accordance with GAAP and may not be comparable to non-GAAP information used by other companies. The non-GAAP information should not be viewed as a substitute for, or superior to, other data prepared in accordance with GAAP.