Nasdaq, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Nasdaq operates market infrastructure and technology, data and analytics, listing, and trading businesses across four segments: Market Technology, Investment Intelligence, Corporate Platforms, and Market Services. This unaudited filing covers the quarter and six months ended June 30, 2022; comparisons are with the same 2021 periods. Results are affected by the 2021 Verafin acquisition, the sale of the U.S. Fixed Income business, and the contribution of Nasdaq Private Market.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $1.552 billion | $1.412 billion | $3.087 billion | $3.063 billion |
| Revenue less transaction-based expenses | $893 million | $846 million | $1.785 billion | $1.697 billion |
| Operating income | $412 million | $376 million | $817 million | $741 million |
| Net income attributable to Nasdaq | $307 million | $341 million | $590 million | $639 million |
| GAAP diluted EPS | $1.85 | $2.05 | $3.55 | $3.83 |
| Non-GAAP diluted EPS | $2.07 | $1.90 | $4.03 | $3.85 |
Q2 total revenue rose 9.9%, while revenue less transaction-based expenses grew 5.6% and operating income rose 9.6%. GAAP net income and diluted EPS declined, primarily reflecting the absence of the prior-year $84 million divestiture gain and lower earnings from unconsolidated investees, partly offset by operating income growth and a lower tax rate. Non-GAAP measures exclude specified items and are not GAAP results.
- Segment trends: Q2 revenue increased in Market Technology (+12.0%), Investment Intelligence (+8.4%), Corporate Platforms (+12.8%), and Market Services (+10.9%). For the first six months, Market Services revenue declined 4.1%, while the other three segments grew.
- Growth drivers included anti-financial-crime solutions, index licensing, analytics, listings, IR and ESG services, and connectivity. Market Services performance was mixed: Q2 equity derivatives revenue less transaction expenses was flat, while cash equity trading revenue less transaction expenses fell 1.8%.
- Cash flow: For the six months, operating cash flow was $980 million, versus $467 million in 2021; investing cash outflow was $244 million, versus $2.525 billion; financing cash inflow was $2.703 billion, versus a $609 million outflow. The operating cash-flow increase partly reflected prior-year Verafin-related cash and tax payments and higher SEC Section 31 fees payable.
- Balance sheet and liquidity: At June 30, cash and cash equivalents were $454 million and financial investments were $161 million. Reported cash, cash equivalents, and restricted cash totaled $8.253 billion, including $7.769 billion of restricted cash tied to clearing-member default funds and margin deposits; these funds are not available for general operations. Working capital was negative $653 million.
- Debt: Total debt obligations were $5.716 billion, including $1.020 billion short-term and $4.696 billion long-term. Nasdaq repaid its $499 million carrying value of 2024 Notes in April, funded primarily with proceeds from $550 million of 2052 Notes. The $1.25 billion revolving credit facility had no borrowings; Nasdaq reported compliance with debt covenants.
Material changes, outlook, and risks
- Q2 operating expenses rose 2.3% to $481 million. Compensation, technology/cloud, and general and administrative costs increased; the latter included debt-extinguishment costs. No restructuring charges were recorded in Q2 2022, versus $21 million in Q2 2021.
- Management said operating cash flows, the revolving credit facility, and commercial paper program should provide sufficient near-term funding for operations, capital expenditures, debt repayments, repurchases, and dividends. The filing provides no specific revenue or earnings guidance.
- Nasdaq repurchased $166 million of shares in Q2 and paid $98 million in dividends. In July, it declared a 3-for-1 stock split, expected to trade on a split-adjusted basis starting August 29, 2022, and approved a $0.20 quarterly dividend per share on a post-split basis.
- In June, Nasdaq acquired ESG software provider Metrio. It also completed the wind-down of its Nordic broker services business.
- Contingencies: Nasdaq is in discussions with OFAC regarding a possible civil penalty relating to historical activity at the Armenian Stock Exchange; the potential loss cannot be reasonably estimated and no accrual was recorded. A non-operational subsidiary received a CFTC Wells Notice concerning alleged potential violations from 2015–2018; Nasdaq plans to contest it and recorded no accrual. Nasdaq Clearing’s approximately $29 million SFSA administrative fine related to a 2018 clearing default was accrued in 2021; its appeal was pending.
- Other risks: Management cited exposure to foreign exchange and interest-rate changes, market and trading-volume fluctuations, clearing-counterparty risks, cybersecurity and technology reliability, inflation, geopolitical instability including the Russian invasion of Ukraine, and the ability to generate cash and manage debt. A 10% adverse currency movement was estimated to reduce six-month revenue less transaction-based expenses by $29 million and operating income by $18 million.
Investor verification points
- Confirm the sources and sustainability of operating cash flow growth, including working-capital movements and restricted clearing collateral.
- Track Market Services net revenue and market share, particularly U.S. options and European cash equities, alongside growth in recurring technology, data, and ESG services.
- Assess the impact of foreign exchange movements, the 2022 debt refinancing, and near-term debt maturities on earnings and liquidity.
- Monitor developments and potential financial exposure in the OFAC, CFTC, and SFSA matters; the filing does not quantify potential losses for the first two matters.
- Distinguish GAAP results from management’s non-GAAP measures and account for the post-quarter stock split when comparing per-share figures.