Nasdaq, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with 2022 unless otherwise noted. Nasdaq operates exchange and market infrastructure and provides data, analytics, financial technology and related services. It reports in Capital Access Platforms, Financial Technology and Market Services. The acquisition of Adenza closed November 1, 2023, materially affecting comparability.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $6.064 billion | $6.226 billion | Down 2.6% |
| Revenue less transaction-based expenses | $3.895 billion | $3.582 billion | Up 8.7% |
| Operating income | $1.578 billion | $1.564 billion | Up 0.9% |
| Net income attributable to Nasdaq | $1.059 billion | $1.125 billion | Down 5.9% |
| Diluted EPS | $2.08 | $2.26 | Down 8.0% |
| Operating cash flow | $1.696 billion | $1.706 billion | Down $10 million |
Operating expenses rose 14.8% to $2.317 billion, led by higher compensation, cloud operations, depreciation and amortization, acquisition-related costs and restructuring. Operating income was approximately 40.5% of revenue less transaction-based expenses, versus 43.7% in 2022 (calculated from reported figures). Net interest expense increased to $169 million from $122 million; debt interest expense rose to $272 million from $120 million, principally reflecting acquisition financing and higher rates. The effective tax rate was 24.6%, compared with 23.9%.
Capital Access Platforms revenue grew 5.2% to $1.770 billion; Financial Technology grew 27.2% to $1.099 billion, including Adenza; Market Services net revenue was nearly flat at $987 million. Segment operating income was $971 million, $494 million and $582 million, respectively. Financial Technology growth reflected Adenza and demand for financial crime, surveillance and capital markets technology solutions. Capital Access Platforms benefited from index AUM, data demand and workflow and insights growth. Market Services faced lower trading market share and capture rates in some U.S. products.
Liquidity, cash flow and debt
Cash and cash equivalents were $453 million at year-end, down from $502 million; working capital was $71 million versus negative $231 million. Operating cash flow was $1.696 billion. Investing cash flow was negative $5.994 billion, primarily reflecting $5.766 billion paid for Adenza, net of acquired cash. Capital expenditures were $158 million; operating cash flow less capital expenditures was approximately $1.538 billion. Financing cash flow was positive $4.220 billion, including acquisition-related debt proceeds.
Total debt obligations were $10.454 billion, up from $5.399 billion, including $291 million of commercial paper and $339 million outstanding on the variable-rate term loan. Nasdaq issued approximately $5.0 billion net proceeds of notes and borrowed $599 million under the term loan to fund the acquisition, repaying $260 million of the loan during the year. The $1.25 billion revolving credit facility was undrawn at year-end; additional European facilities provided $191 million of unused liquidity. Nasdaq reported compliance with debt covenants. Dividends paid were $441 million, and $269 million of common stock was repurchased. The declared dividend was $0.86 per share for 2023, versus $0.78 in 2022.
Clearing-member default funds and margin deposits were $7.275 billion on the balance sheet, with an equal liability; they are not general-purpose company liquidity. The filing reports $123 million of required Nasdaq Clearing regulatory capital.
Material changes, outlook and risks
- Adenza acquisition: Completed November 1 for total purchase consideration of $9.984 billion, comprising $5.814 billion cash and 85.6 million Nasdaq shares. It contributed $149 million of revenue and $55 million of operating income from closing through year-end. Purchase-price allocation remains preliminary; recorded goodwill was $5.933 billion and acquired intangible assets were $5.050 billion.
- Synergies and restructuring: Management expects $80 million of net expense synergies two years after Adenza’s closing. The 2022 divisional alignment program targets approximately $30 million of annual run-rate operating efficiencies and revenue synergies by 2025. 2023 restructuring charges were $80 million; the Adenza restructuring program is expected to incur approximately $80 million in pre-tax charges in total.
- Business outlook: The filing emphasizes continued SaaS growth, cloud migration and investment in AI, but provides no clear quantified company-wide revenue or EPS guidance. Management expects further North American market migrations to AWS over the next several years. ARR is a company-defined recurring-contract measure, not a forecast.
- Market and execution risks: IPO activity remained weak and delistings increased in 2023. Trading volumes, market share, pricing and data-fee regulation can affect results. Other key risks include cybersecurity and system disruptions, dependence on third-party cloud providers, acquisition integration, clearing-member defaults, foreign exchange and interest rates, and substantial indebtedness.
- Regulatory and contingent matters: The CFTC staff has indicated it plans to recommend an enforcement action concerning a former futures exchange; Nasdaq says the outcome and possible remedies are uncertain and could be material. The Swedish SFSA is reviewing Nasdaq Stockholm’s reporting of suspected market abuse. A $115 million net receivable related to CAT implementation costs depends on pending regulatory and court matters affecting recovery. The European energy trading and clearing business sale, announced in June 2023, remained subject to regulatory approval.
- Controls and unusual items: Management and the auditor reported effective internal control over financial reporting, but Adenza’s controls were excluded from the year-end assessment under the SEC’s one-year acquisition guidance. Nasdaq recorded $23 million of real-estate-related impairment and exit costs and a $9 million pension settlement charge; a further pension settlement loss may arise in the first half of 2024. No goodwill impairment was recorded.
Important facts for investors to verify
- How much of Financial Technology’s growth and future synergy realization depends on Adenza, and how final purchase accounting may change goodwill, intangible amortization and taxes.
- Debt paydown capacity, refinancing costs and interest-rate exposure following the acquisition; separately assess restricted clearing deposits versus available corporate liquidity.
- Whether operating cash generation and recurring revenue growth can offset higher operating costs, acquisition amortization and restructuring expenses.
- Developments in the CFTC matter, SFSA review, CAT cost-recovery proceedings and approval of the European energy business sale.
- Progress in integrating Adenza’s systems and controls, and the operational and cybersecurity risks of cloud migration and third-party providers.