Business context and reporting period
Nasdaq, Inc. is a global capital-markets technology company operating four segments: Market Services, Corporate Platforms, Investment Intelligence and Market Technology. This Form 10-K covers the fiscal year ended December 31, 2020; it does not provide a clear standalone fourth-quarter income statement in the supplied text. Segment names changed during the year, with no impact on reported results.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $5.627 billion | $4.262 billion | +32.0% |
| Revenue less transaction-based expenses | $2.903 billion | $2.535 billion | +14.5% |
| Operating income | $1.234 billion | $1.017 billion | +21.3% |
| Net income attributable to Nasdaq | $933 million | $774 million | +20.5% |
| Diluted EPS | $5.59 | $4.63 | +20.7% |
| Cash dividends declared per share | $1.94 | $1.85 | +4.9% |
Operating margin on revenue less transaction-based expenses was approximately 42.5%, versus 40.1% in 2019. The reported total-revenue increase includes substantial pass-through transaction expenses; net revenue growth is a more useful measure of underlying revenue performance.
- Segment net revenues: Market Services $1.108 billion (+21.5%); Corporate Platforms $530 million (+6.9%); Investment Intelligence $908 million (+16.6%); Market Technology $357 million (+5.6%).
- Cash flow: Operating cash flow was $1.252 billion, up from $963 million. Investing activities used $231 million; financing activities provided $1.383 billion. Dividends paid were $320 million and share repurchases were $222 million.
- Liquidity: Cash and cash equivalents were $2.745 billion and financial investments were $195 million at year-end. Working capital was $2.736 billion, compared with $63 million at year-end 2019; the increase largely reflected debt proceeds held for Verafin’s acquisition.
- Debt: Debt obligations totaled $5.541 billion, compared with $3.387 billion a year earlier. The company had no outstanding commercial paper or borrowings under its $1.25 billion revolving credit facility at year-end and reported compliance with debt covenants.
- Margins and costs: Operating expenses rose 9.9% to $1.669 billion, including $48 million of restructuring charges and a $25 million estimated project-loss provision. Interest expense declined to $101 million from $124 million; the effective tax rate was 23.0%, versus 24.0%.
Material changes versus the prior period
- Elevated trading activity during the COVID-19 market volatility drove substantial growth in Market Services: U.S. options industry average daily volume increased to 27.7 million from 17.5 million, while U.S.-listed equity average daily share volume rose to 10.9 billion from 7.0 billion. Nasdaq’s matched options market share declined to 36.8% from 38.3%, and matched U.S. cash-equity share declined to 18.3% from 19.6%.
- Investment Intelligence growth was led by Index revenues, up 45.3%, supported by higher average assets in ETPs tracking Nasdaq indexes and increased Nasdaq-100 futures licensing. ETP assets tracking Nasdaq indexes rose to $359 billion from $233 billion.
- Corporate Platforms benefited from more listings and demand for governance and investor-relations services. Nasdaq attracted 454 U.S. new listings, including 316 IPOs, compared with 313 new listings and 188 IPOs in 2019.
- Market Technology annualized recurring revenue increased to $283 million from $260 million, while order intake declined to $240 million from $366 million.
- Operating cash flow improved, and interest expense decreased after refinancing at lower rates. Debt increased significantly with 2020 issuances, including approximately $1.9 billion of fourth-quarter net proceeds intended partly to fund Verafin.
Outlook, commentary, risks and unusual items
- Outlook: No quantified earnings or revenue guidance is provided in the supplied filing text. Management expected operations, revolving-credit availability and the commercial-paper program to fund near-term operating costs, capital expenditures, debt repayments, repurchases and dividends.
- Strategy and transactions: Nasdaq emphasized growth in Market Technology, Investment Intelligence and ESG solutions, alongside investment in its Nasdaq Financial Framework and SaaS offerings. It completed the $2.75 billion Verafin acquisition in February 2021, after year-end. It also agreed to sell its U.S. fixed-income business, with closing subject to approvals and expected later in 2021.
- COVID-19 and operating risks: Trading volumes and IPO demand may normalize; some Market Technology customers delayed purchases or implementations. Remote work heightened cybersecurity and operational risks. Other key exposures include competitive and pricing pressure, system outages, clearing-counterparty defaults, foreign-exchange movements, acquisition integration and regulatory changes to U.S. market-data governance and distribution.
- Contingencies: In January 2021, Sweden’s financial supervisor issued Nasdaq Clearing a warning and an approximately $36 million administrative fine related to the 2018 commodities clearing default. Nasdaq Clearing plans to appeal; no year-end accrual was recorded because the outcome could not be reasonably estimated. The company also disclosed unresolved litigation in the City of Providence matter, for which potential liability could not be estimated.
- Unusual items: A $25 million provision was recorded for an expected loss on a large post-trade clearing implementation project, partly due to COVID-19 logistics. Nasdaq reversed a prior $6 million Swedish regulatory fine after a favorable court decision. The 2020 results also included $48 million of restructuring charges, a $36 million debt-extinguishment charge, and $17 million of charitable donations.
- Controls and audit: Management and Ernst & Young reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- How much Market Services’ 2020 growth depended on unusually high, potentially non-recurring trading volumes and pass-through fees, and the implications of lower matched market share.
- Verafin’s post-close contribution, integration costs, realized synergies and effect on leverage following the $2.75 billion acquisition.
- The timing, proceeds and capital-return effects of the U.S. fixed-income business sale, including the expected approximately 6.2 million-share issuance and planned repurchases.
- The outcome and financial impact of the Nasdaq Clearing fine appeal, recovery from the 2018 default and remaining litigation or regulatory matters.
- Progress and profitability of Market Technology implementations, particularly the project with the $25 million estimated loss, as well as the conversion of order intake into recurring revenue.