Nasdaq, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results are compared with the same 2022 periods. Nasdaq operates exchange and marketplace services, data and listing products, workflow and analytics solutions, and anti-financial-crime technology.
Financial performance
Amounts are in millions of dollars except per-share amounts and percentages.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenues | $1,451 | $1,557 | $4,417 | $4,644 |
| Revenues less transaction-based expenses | $940 | $890 | $2,778 | $2,675 |
| Operating expenses | $509 | $492 | $1,553 | $1,460 |
| Operating income | $431 | $398 | $1,225 | $1,215 |
| Net income attributable to Nasdaq | $294 | $294 | $862 | $884 |
| Diluted EPS | $0.60 | $0.59 | $1.74 | $1.77 |
- Q3 revenues less transaction-based expenses increased 5.6%; operating income rose 8.3%, while net income was unchanged. Nine-month net revenues rose 3.9%, operating income 0.8%, while Nasdaq-attributable net income declined 2.5%.
- Operating income as a proportion of revenues less transaction-based expenses was approximately 45.9% in Q3 2023 versus 44.7% in Q3 2022; for the first nine months it was approximately 44.1% versus 45.4%.
- Q3 segment revenues: Market Platforms $892 (down 14.7%); Capital Access Platforms $456 (up 8.1%); Anti-Financial Crime $93 (up 20.8%). Market Platforms’ net revenue after transaction expenses was $381, roughly flat year over year. Nine-month segment operating income was $634, $720 and $85, respectively.
- Q3 interest income was $72 and interest expense $101. Nine-month net interest expense was $88, compared with $93 in 2022. Higher interest income reflected increased cash and rates; higher gross interest expense reflected debt issued to fund the Adenza acquisition and higher rates.
- Operating cash flow was $1,279 for nine months, versus $1,212. Investing activities used $158; financing activities provided $3,019. Cash and cash equivalents were $5,340 at September 30, up from $502 at year-end 2022. Total cash, including restricted cash and clearing-related balances, was $10,834.
- Total debt obligations were $9,703 at September 30, versus $5,399 at year-end 2022; no commercial paper or revolving-credit borrowings were outstanding at quarter-end. The company reported compliance with debt covenants. The $1.25 billion revolving facility matures in 2027.
- Working capital was $5,303, compared with negative $231 at year-end 2022, principally reflecting acquisition-related debt proceeds held in cash and lower short-term debt.
- Dividends paid totaled $314 for the first nine months; the declared dividend was $0.22 per share in Q3. The board increased remaining share-repurchase authorization to $2.0 billion in September. Repurchases under the program totaled $159 for the first nine months.
Material changes and business developments
- Market Platforms’ Q3 reported revenue fell largely because transaction-based expenses—particularly brokerage, clearance and exchange fees—were substantially lower; net revenue for the segment remained nearly flat. Trading Services net revenue was $236, down 1.3%, while Marketplace Technology revenue rose 3.6% to $145.
- Capital Access Platforms growth reflected higher proprietary data and annual listing fees, index revenue, and Workflow & Insights demand. Anti-Financial Crime growth reflected demand for fraud detection, anti-money-laundering and surveillance products.
- U.S. listing activity remained softer year to date: Nasdaq Stock Market IPOs were 102 for the first nine months versus 143 in 2022, and total new listings were 230 versus 292. Index-linked ETP assets were $411 billion at quarter-end, compared with $311 billion a year earlier.
- On November 1, 2023, after the reporting date, Nasdaq completed its acquisition of Adenza for $5.75 billion in cash and 85.6 million Nasdaq shares, approximately 15% of outstanding shares immediately after issuance. Nasdaq borrowed $599 million net under the acquisition term loan at closing. Purchase accounting and pro forma combined results were not yet available in the filing.
- Nasdaq issued six note tranches in June, with $5.011 billion net proceeds as of September 30, primarily to finance Adenza. Long-term debt increased accordingly. The acquisition and its financing are material to assessing future leverage, interest costs and share dilution.
Outlook, risks and unusual items
- The filing provides no specific consolidated revenue or earnings guidance. Management said cash, operating cash flow, revolving-credit availability and the commercial-paper program should be sufficient for near-term operating needs, capital expenditures, debt repayments and shareholder returns.
- The divisional alignment program is expected to incur $115–$145 million of pretax charges over two years; $64 million had been incurred through September 30, 2023. Management expects approximately $30 million of annual run-rate operating efficiencies and revenue synergies by 2025.
- Q3 included $17 million of restructuring charges. First-nine-month results included $49 million of restructuring charges and $24 million of lease-related impairments. The company cited an ongoing review of facilities prompted by evolving work models.
- Regulatory and legal matters include a CFTC Wells Notice concerning a former futures exchange subsidiary. The company cannot estimate a potential loss; any remedies could materially affect results or reputation, and no loss contingency was accrued. Nasdaq also disclosed a preliminary Swedish regulator review regarding suspected market-abuse reporting and an ongoing OFAC inquiry for which an immaterial loss contingency was accrued.
- Principal risks identified include market and economic conditions, trading volumes and market share, acquisition integration, technology and cybersecurity, systems reliability, foreign exchange and interest-rate exposures, access to capital, clearing-counterparty risks, and regulatory or litigation outcomes. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- How Adenza’s acquired results, purchase-price allocation, integration costs and expected synergies affect subsequent reporting periods.
- Post-acquisition leverage, cash deployment, interest expense, covenant headroom and the impact of issuing 85.6 million shares.
- Whether recurring Capital Access Platforms and Anti-Financial Crime growth offsets trading-related weakness and softer listing activity.
- Progress against the restructuring program’s remaining expected charges and the 2025 annual benefit target.
- Developments and potential financial or reputational consequences of the CFTC, SFSA and OFAC matters.
- Changes in cash generation, dividend and repurchase plans, while distinguishing unrestricted cash from restricted clearing-member funds.