Nasdaq, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. Nasdaq operates Market Technology, Investment Intelligence, Corporate Platforms and Market Services.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $1.357B | $1.413B | $4.419B | $4.163B |
| Revenue less transaction-based expenses | $838M | $715M | $2.534B | $2.115B |
| Operating income | $356M | $326M | $1.097B | $916M |
| Net income attributable to Nasdaq | $288M | $264M | $928M | $708M |
| Diluted EPS | $1.69 | $1.58 | $5.53 | $4.25 |
| Operating expenses | $482M | $389M | $1.437B | $1.199B |
Q3 revenue less transaction-based expenses rose 17.2%, operating income 9.2%, and net income 9.1% year over year. For the first nine months, those measures increased 19.8%, 19.8%, and 31.1%, respectively. Nine-month diluted EPS rose 30.1%. Higher expenses, including acquisition-related costs and amortization, partly offset revenue growth.
Segment trends: Q3 revenue rose in Market Technology (+32.6%), Investment Intelligence (+15.3%) and Corporate Platforms (+18.3%), while Market Services fell 14.7%. Verafin contributed to Market Technology growth; higher index licensing and listing activity supported other growth segments. In Market Services, trading and clearing net revenue increased despite lower U.S. matched market share in several markets. For the nine months, revenue less transaction-based expenses grew across the reported total, while Market Services revenue declined 1.1%.
Cash flow, balance sheet and capital
- Nine-month operating cash flow was $699M, versus $817M; investing cash outflow was $2.440B, mainly reflecting the Verafin acquisition; financing cash outflow was $701M.
- Cash and cash equivalents were $303M at September 30, 2021, down from $2.745B at year-end 2020. Working capital was negative $99M, versus positive $2.736B at year-end, principally reflecting acquisition funding and related cash uses.
- Total debt obligations were $5.927B, including $480M commercial paper and $5.447B long-term debt. Nasdaq reported $770M remaining under its $1.25B revolving facility, excluding $480M supporting commercial paper, plus $218M of unused European facilities. It was in compliance with debt covenants.
- Q3 dividends were $0.54 per share; the company also repurchased $410M of stock in the first nine months and entered a $475M accelerated share repurchase agreement. The board approved a further $0.54 quarterly dividend payable in December.
- Clearing-member default funds and margin deposits are recorded as equal current assets and liabilities; they are not equivalent to freely available corporate liquidity.
Material changes, outlook and risks
- Nasdaq completed its $2.75B Verafin acquisition in February. The transaction increased goodwill and intangible assets and contributed to higher expenses and debt-related costs.
- Nasdaq sold its U.S. Fixed Income business in June, recording an $84M pretax gain. It contributed its Nasdaq Private Market business to a separate company in July, retaining the largest minority interest. Management said additional planned repurchases related to the fixed-income sale would resume in 2022.
- In August, Nasdaq repaid its €600M 2023 notes using proceeds primarily from issuing €615M of 0.900% notes due 2033. Early extinguishment generated a $33M pretax charge.
- No specific earnings or revenue guidance is provided in the supplied filing text. Management expected operations, the revolving facility and commercial-paper program to provide sufficient near-term funding for operations, capital spending, debt repayments, repurchases and dividends. It reported no material liquidity deficiencies related to COVID-19.
- Key risks include market volumes and market share, technology reliability and cybersecurity, acquisition integration, foreign-exchange and interest-rate exposure, access to funding, clearing counterparty risk, and regulatory or legal outcomes.
- Nasdaq Clearing appealed an approximately $34M Swedish regulatory fine related to the 2018 commodities-market default; no accrual was recorded because the outcome could not be reasonably estimated. OFAC was considering a civil penalty concerning historical activity involving the Armenian Stock Exchange; the potential amount and timing were not estimable, and no loss was accrued. The Providence market-structure litigation also remained unresolved, with potential liability not estimable.
Most important facts for investors to verify
- Whether Verafin growth and recurring-revenue expansion continue to offset integration costs, amortization and higher operating expenses.
- Progress on the remaining ASR shares, repurchases planned for 2022, and the effect of capital returns on liquidity and share count.
- Cash generation, commercial-paper refinancing and debt levels following the acquisition and major shareholder returns.
- Developments in the OFAC matter, the Swedish fine appeal and the Providence litigation, including any change in estimated exposure or accruals.
- Market Services trends, particularly U.S. matched market share, trading volumes, capture rates and the impact of the U.S. Fixed Income sale.