Business Context and Reporting Period
Company: The NASDAQ OMX Group, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: A leading global exchange group formed by the 2008 combination of The Nasdaq Stock Market, Inc. and OMX AB. The company operates three primary segments: Market Services (trading, market data, broker services), Issuer Services (listing services, index group), and Market Technology (trading and clearing solutions). As of June 30, 2009, the group operated exchanges in the U.S., Europe (Nordic, Baltic, London), and the Middle East (Dubai).
Key Financial Metrics
| Metric (in millions) | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $889 | $1,783 |
| Revenues less Cost of Revenues | $367 | $735 |
| Operating Income | $159 | $324 |
| Net Income Attributable to NASDAQ OMX | $69 | $163 |
| Diluted Earnings Per Share | $0.33 | $0.77 |
| Cash and Cash Equivalents | $419 | $419 (Balance Sheet) |
| Total Debt Obligations | $2,315 (Total) | $2,315 (Total) |
| Working Capital | $429 | $429 (Balance Sheet) |
Material Changes vs. Prior Period
- Revenue Trends: Total revenues increased 8.2% for the three months ended June 30, 2009, compared to the same period in 2008 ($889M vs. $822M). For the six-month period, revenues increased 9.1% ($1,783M vs. $1,635M).
- Market Services: Revenues grew 12.3% (Q2) and 10.3% (6M), driven primarily by the inclusion of NASDAQ OMX PHLX derivative trading revenues.
- Issuer Services: Revenues declined 10.9% (Q2) and 4.7% (6M) due to fewer new listings and lower market capitalization of listed companies.
- Market Technology: Revenues decreased 16.3% in Q2 due to foreign exchange impacts but increased 18.2% for the six-month period due to full-period inclusion of acquired businesses.
- Operating Expenses: Decreased 7.6% in Q2 ($208M vs. $225M) due to favorable foreign exchange impacts, partially offset by expenses from new acquisitions. For the six months, expenses increased 11.1% ($411M vs. $370M) primarily due to the inclusion of OMX and PHLX operations for the full period.
- Non-Operating Items:
- Loss on Sale of Investments: A $19 million loss was recorded in Q2 2009 from the sale of the company's 25.25% equity interest in Orc Software AB. Additionally, a $5 million loss was recorded on the sale of an available-for-sale investment in Oslo.
- Foreign Currency: Unfavorable foreign exchange impacts reduced revenues less cost of revenues by $33 million in Q2 and $47 million for the six months compared to prior year periods.
Guidance, Outlook, and Risks
- Outlook: Management expects operations to provide sufficient cash to fund operating expenses, capital expenditures, and interest payments in the near term. The company anticipates recording recurring quarterly tax benefits of $4 million to $5 million related to a Swedish tax ruling.
- Market Environment: The business environment is characterized by improved stability in investor outlook but continued reduced access to debt and equity capital. Trading volumes in U.S. equities showed moderate growth, while Nordic/Baltic equity transaction values declined due to lower market capitalizations.
- Risks and Contingencies:
- Market Risk: Significant exposure to foreign currency fluctuations (primarily Swedish Krona and Euro) and interest rate changes on floating-rate debt.
- Credit Risk: Exposure to counterparty default in clearing operations, though mitigated by $6.0 billion in customer-pledged collateral.
- Regulatory Risk: Ongoing adaptation to major regulatory initiatives, such as MiFID in Europe, and potential changes in transaction fee pricing due to competition.
Investor Verification Checklist
- Acquisition Integration: Verify the realization of synergies and cost savings from the integration of OMX AB, PHLX, and Nord Pool acquisitions.
- Foreign Exchange Sensitivity: Assess the impact of currency fluctuations on future earnings, given that approximately 33-34% of revenues are derived in non-U.S. currencies.
- Debt Servicing: Review the company's ability to service $2.3 billion in total debt obligations, including the $2.0 billion term loan facility and convertible notes.
- Listing Trends: Monitor the number of new listings and IPOs, as Issuer Services revenues are directly tied to listing fees and market capitalization.
- Derivative Trading Volume: Track derivative trading volumes, particularly at NASDAQ OMX PHLX and Nordic exchanges, as this segment is a primary growth driver.