Nasdaq, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022. Nasdaq operates a global exchange and financial-technology business across Market Technology, Investment Intelligence, Corporate Platforms and Market Services. The statements are unaudited and prepared under U.S. GAAP. Per-share and share data reflect the August 2022 three-for-one stock split.
Financial performance
| Metric | Q3 2022 | Q3 2021 | First nine months 2022 | First nine months 2021 |
|---|---|---|---|---|
| Total revenue | $1.557 billion | $1.357 billion | $4.644 billion | $4.419 billion |
| Revenue less transaction-based expenses | $890 million | $838 million | $2.675 billion | $2.534 billion |
| Operating expenses | $492 million | $482 million | $1.460 billion | $1.437 billion |
| Operating income | $398 million | $356 million | $1.215 billion | $1.097 billion |
| Net income attributable to Nasdaq | $294 million | $288 million | $884 million | $928 million |
| Diluted EPS | $0.59 | $0.56 | $1.77 | $1.84 |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $1.212 billion | $699 million |
Q3 revenue less transaction-based expenses rose 6.2%, operating income rose 11.8%, and diluted EPS rose 5.4%. For the nine-month period, those measures increased 5.6%, 10.8% and decreased 3.8%, respectively. Q3 non-GAAP diluted EPS was $0.68 versus $0.59; nine-month non-GAAP diluted EPS was $2.02 versus $1.88. Non-GAAP measures exclude specified items and are not substitutes for GAAP results.
Q3 segment revenue increased year over year: Market Technology 15.8% to $132 million; Investment Intelligence 4.4% to $284 million; Corporate Platforms 8.4% to $168 million; and Market Services 19.9% to $972 million. Market Services revenue includes substantial transaction-based expenses and pass-through fees; its net revenue after transaction-based expenses is more comparable across periods. For the first nine months, Market Services revenue less transaction-based expenses declined to $923 million from $928 million, while the other three segments grew.
Cash flow, balance sheet and capital
- Cash and liquidity: Cash and cash equivalents were $301 million at September 30, 2022, down from $393 million at year-end 2021. Financial investments were $129 million, making reported financial assets $430 million. The company reported negative working capital of $484 million.
- Restricted clearing funds: The balance sheet included $9.507 billion of default funds and margin deposits, matched by an equal liability. Of this asset balance, $8.882 billion was restricted cash. These funds are clearing-member collateral, not available corporate cash. The large year-over-year increase reflects clearing deposits and currency translation.
- Cash flow: Nine-month operating cash flow was $1.212 billion, up from $699 million, partly because 2021 included cash payments related to the Verafin acquisition. Investing cash outflow was $25 million versus $2.532 billion, largely reflecting the prior-year Verafin acquisition. Financing cash inflow was $4.275 billion, principally reflecting clearing-member fund movements and debt issuance.
- Debt: Total debt obligations were $5.372 billion, versus $5.830 billion at December 31, 2021. This included $799 million of short-term debt—$600 million of notes due December 2022 and $199 million of commercial paper—and $4.573 billion of long-term debt. Nasdaq issued $550 million of 3.95% notes due 2052 and used net proceeds to redeem its $500 million 4.25% notes due 2024. No borrowings were outstanding under the $1.25 billion revolving credit facility; $173 million of other European credit facilities was also unused. Nasdaq said it was in compliance with debt covenants.
- Shareholder returns: Nine-month dividends paid were $285 million; share repurchases totaled $308 million under the program and $325 million under an accelerated repurchase. The remaining authorization was $293 million. The board approved a $0.20-per-share quarterly dividend for payment in December 2022.
Material changes and management commentary
- Growth in recurring and technology-related businesses supported results: nine-month Market Technology revenue rose 16.6%, Investment Intelligence 8.1% and Corporate Platforms 11.8%. Anti-Financial Crime Technology benefited from demand for fraud and anti-money-laundering solutions. Analytics cited strong retention and new sales; IR and ESG Services cited higher adoption and retention.
- Market Services trends were mixed. Higher U.S. trading volumes supported Q3, but nine-month net revenue after transaction-based expenses declined, reflecting lower capture rates, foreign exchange impacts and lower European market share in some businesses. Nine-month U.S. options matched market share was 32.0%, down from 34.9%.
- IPO activity weakened sharply: Nasdaq reported 35 U.S. IPOs in Q3 2022 versus 147 in Q3 2021, although it said it led U.S. exchanges for IPOs in the quarter, with a 90% win rate. Nasdaq’s reported definitions of IPOs and new listings should be considered when comparing those figures.
- Nine-month GAAP net income declined despite higher operating income. The prior-year period included an $84 million gain on the U.S. Fixed Income divestiture and substantially higher income from unconsolidated investees, principally OCC. Foreign currency translation losses were $505 million for the first nine months and contributed to lower equity and goodwill carrying values.
- Operating expenses rose 1.6% for the nine-month period. Compensation and benefits increased with staffing and inflationary pressures; computer and data communications costs increased with software and cloud initiatives. Merger and strategic initiative costs declined, and 2021 restructuring charges did not recur.
- Nasdaq announced a new three-segment reporting structure—Market Platforms, Capital Access Platforms and Anti-Financial Crime—to take effect by the end of 2022, with comparative periods to be restated. It also announced plans for a Digital Assets business initially focused on custody, subject to regulatory approvals in applicable jurisdictions.
Outlook, risks and contingencies
- No quantitative earnings or revenue guidance is provided in the supplied filing text. Management said operations and available revolving-credit and commercial-paper capacity were expected to fund near-term operating costs, capital expenditures, debt repayments and shareholder returns.
- Key stated risks include market and economic volatility, inflation and interest rates, foreign exchange exposure, geopolitical instability related to Russia’s invasion of Ukraine, trading-volume and market-share changes, cybersecurity and technology reliability, regulation, and the ability to generate cash and manage debt. Nasdaq quantified that a 10% adverse currency move would reduce nine-month revenue less transaction-based expenses by an estimated $41 million and operating income by $26 million.
- Nasdaq is discussing a potential civil monetary penalty with OFAC regarding a former Armenian subsidiary’s past dealings with a sanctioned market participant. The company said it could not estimate a loss range and had not accrued a contingency.
- A non-operational subsidiary received a CFTC Wells Notice concerning alleged historical violations. Nasdaq contested the staff’s position, noted that a Wells Notice is not a formal charge or final determination, and recorded no accrual because the potential loss could not be estimated.
- Nasdaq Clearing appealed an approximately $27 million Swedish regulator fine related to a 2018 clearing-member default. The fine had been accrued in 2021; an appellate decision was expected by year-end 2022. Nasdaq stated it believed in the merits of its appeal.
- The filing reported no material changes to previously disclosed risk factors, no material subsequent events, and effective disclosure controls and procedures.
Important facts for investors to verify
- Whether the December 2022 $600 million note maturity was repaid, refinanced or otherwise funded, and the subsequent level and cost of commercial paper and total debt.
- Whether operating cash generation and liquidity remain adequate after excluding restricted clearing-member collateral from available corporate cash.
- How trading volumes, capture rates, transaction rebates, Section 31 fee pass-throughs and foreign exchange movements affect Market Services net revenue.
- Progress and regulatory status of the Digital Assets custody initiative, and the timing and comparability of reporting under the new segment structure.
- Outcomes and any updated loss estimates for the OFAC matter, CFTC Wells Notice and Nasdaq Clearing fine appeal.
- How much of reported earnings growth reflects ongoing operations versus non-GAAP adjustments, acquisition effects and prior-period unusual items.