Nasdaq, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone Q4 filing; selected unaudited Q4 results are included. Nasdaq operates four segments: Market Services, Corporate Services, Information Services and Market Technology.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Total revenue | $4.262 billion | $4.277 billion | Down 0.4% |
| Revenue less transaction-based expenses | $2.535 billion | $2.526 billion | Up 0.4% |
| Operating expenses | $1.518 billion | $1.498 billion | Up 1.3% |
| Operating income | $1.017 billion | $1.028 billion | Down 1.1% |
| Net income attributable to Nasdaq | $774 million | $458 million | Up 69.0% |
| Diluted EPS | $4.63 | $2.73 | Up 69.6% |
| Cash from operating activities | $963 million | $1.028 billion | Down 6.3% |
- Net income growth substantially reflects the lower income-tax provision ($245 million versus $606 million in 2018) and higher income from unconsolidated investees ($84 million versus $18 million), rather than operating-income growth. The 2018 comparison included a $118 million pre-tax investment-sale gain.
- Effective tax rate was 24.0%, compared with 57.0% in 2018. The 2018 rate included a $290 million non-cash charge related to finalizing accounting for U.S. tax-law changes.
- Segment revenue less transaction-based expenses: Market Services $912 million (down 4.8%); Corporate Services $496 million (up 1.8%); Information Services $779 million (up 9.1%); Market Technology $338 million (up 25.2%). Market Technology growth included Cinnober; Information Services benefited from index-linked assets and investment data and analytics.
- Market Services weakness reflected lower U.S. trading activity and lower FICC revenue. Nasdaq’s U.S. options matched share declined to 38.3% from 38.9%; total U.S. cash-equity market share, including the FINRA/Nasdaq Trade Reporting Facility, was 49.4% versus 50.8%.
- FY 2019 Q4: revenue $1.065 billion; revenue less transaction-based expenses $646 million; operating income $260 million; net income $202 million; diluted EPS $1.21.
- Cash and cash equivalents were $332 million, restricted cash $30 million and financial investments $291 million at year-end. Operating cash flow was $963 million; investing cash flow was negative $240 million and financing cash flow negative $937 million. Year-end cash, including restricted cash, was $362 million.
- Total debt obligations were $3.387 billion, including $391 million of commercial paper and $2.996 billion of long-term debt. The $1 billion revolving facility had no borrowings; $608 million remained available after specified support and letter-of-credit capacity. Working capital was $63 million. Management said operating cash flow, the revolver and commercial-paper program were expected to cover near-term needs.
- Cash dividends declared were $1.85 per share for 2019, up from $1.70. Nasdaq repurchased $200 million of shares in 2019; $632 million remained authorized at year-end.
Material changes, outlook and unusual items
- Nasdaq acquired Cinnober in January 2019 for $219 million, strengthening Market Technology, and acquired Center for Board Excellence in October. It sold BWise in March, the Nordic Fund Market in October, and NFX’s core assets in November. An orderly wind-down of broker services operations began in January 2020 and was expected to continue through Q2 2021.
- Management’s strategy emphasizes investment in Market Technology and Information Services, maintaining core marketplaces, and redirecting resources from lower-growth activities. The filing provides no broad quantified revenue or earnings guidance.
- A restructuring plan launched in September 2019 involves retiring and transitioning technology platforms as Nasdaq implements its Nasdaq Financial Framework. Management expected $70–$80 million of pre-tax charges over two years; $39 million was recorded in 2019, including $24 million of asset impairments.
- Other notable FY 2019 items included a $27 million pre-tax gain on the BWise sale, an $11 million debt-extinguishment charge, and a $20 million provision for CAT-related notes receivable. Net income from unconsolidated investees included $48 million of 2019 OCC income and a $36 million adjustment for Nasdaq’s share of OCC’s 2018 income.
- Risks include market-volume and market-share sensitivity, competition and pricing pressure, cybersecurity and technology outages, clearing-member defaults and counterparty exposure, regulatory limits on data fees and market structure, acquisition integration, foreign exchange, leverage, and litigation. The 2018 commodities clearing-member default caused a $133 million initial loss; Nasdaq reported that related contracts and mitigating positions had expired or been sold by year-end 2019.
- Pending matters include the City of Providence high-frequency-trading litigation, for which Nasdaq said it could not estimate potential liability, and appeals concerning SEC decisions on certain market-data fees. Nasdaq estimated one SEC decision could reduce annual revenue by about $1 million. A $6 million Swedish regulator fine relating to governance findings remained under appeal. Nasdaq said the commodities-default regulatory matter could include penalties but was not expected to materially affect consolidated results.
- The auditor issued an unqualified opinion on the financial statements and internal controls. Management also concluded disclosure controls and internal control over financial reporting were effective at year-end.
Important facts for investors to verify
- How much of earnings growth is repeatable after separating tax effects, OCC income, divestiture gains and other adjustments; compare GAAP results with the company’s non-GAAP reconciliation.
- Whether growth in recurring Information Services and Market Technology revenue can offset softer transaction-based Market Services results, and whether Market Technology orders and ARR convert into recognized revenue.
- Progress, remaining costs and realized benefits of the technology restructuring, including the expected $70–$80 million total charge and platform migration execution.
- Debt repayment and refinancing plans, commercial-paper use, liquidity availability, and the implications of the 2020 issuance of 0.875% notes due 2030 and planned redemption of 2021 notes.
- Updates to the clearing-default recovery and regulatory review, SEC market-data fee appeals, and other litigation or tax contingencies.