Nasdaq, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Nasdaq is a global technology company serving capital markets and other industries, with Market Technology, Investment Intelligence, Corporate Platforms and Market Services segments. Comparisons are affected by the 2021 Verafin acquisition, U.S. Fixed Income business sale and Nasdaq Private Market contribution.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $1.535 billion | $1.651 billion | (7.0%) |
| Revenue less transaction-based expenses | $892 million | $851 million | +4.8% |
| Operating expenses | $487 million | $486 million | +0.2% |
| Operating income | $405 million | $365 million | +11.0% |
| Net income attributable to Nasdaq | $284 million | $298 million | (4.7%) |
| Diluted EPS | $1.70 | $1.78 | (4.5%) |
| Cash from operating activities | $605 million | $394 million | +53.6% |
Operating margin was approximately 45.4% of revenue less transaction-based expenses, versus 42.9% in the prior-year quarter. GAAP net income fell despite higher operating income, primarily reflecting a sharp decline in income from unconsolidated investees, particularly OCC ($7 million versus $57 million), and higher interest and other expense. Non-GAAP diluted EPS was $1.97 versus $1.96; this excludes specified items and is not a GAAP measure.
Segment revenues were: Market Technology $124 million (+24.0%); Investment Intelligence $284 million (+10.9%); Corporate Platforms $168 million (+15.1%); and Market Services $958 million ((15.5%)). Market Services revenue less transaction-based expenses was $315 million, down from $334 million. Growth in the first three segments was led by Verafin and subscription/index, analytics, listing and IR/ESG activity. Market Services was pressured by lower trading volumes or capture rates in some businesses and lower pass-through fees.
Liquidity, cash flow and debt
Cash and cash equivalents were $486 million at quarter-end, compared with $393 million at year-end 2021. Total assets were $20.8 billion and total liabilities $14.8 billion. Working capital was negative $673 million, versus negative $449 million at year-end; Nasdaq attributed the decline mainly to higher deferred revenue, short-term debt and other current liabilities. Management reported no identified liquidity deficiency and expected operations, the revolving credit facility and commercial paper program to provide sufficient near-term funding.
Reported cash, cash equivalents and restricted cash totaled $5.915 billion, but $5.398 billion was restricted cash associated with clearing-member default funds and margin deposits, not general-purpose liquidity. Investing activities used $390 million, including $372 million of net purchases related to default funds and margin deposits. Financing activities provided $368 million, including debt proceeds and an increase in default-fund and margin balances; shareholder returns included $325 million of ASR repurchases, $142 million of other repurchases and $89 million of dividends.
Total debt obligations were $5.898 billion, including $1.098 billion classified as short-term. Nasdaq had no commercial paper or revolving-credit-facility borrowings outstanding at March 31, and was in compliance with debt covenants. In March, it issued $550 million of 3.95% notes due 2052. In April, it used the proceeds primarily to redeem the $500 million 4.25% notes due 2024, recording a $16 million pretax extinguishment charge in April. A $1.25 billion revolving facility and $204 million of other available credit facilities were undrawn at quarter-end.
Outlook, commentary and material risks
- No specific earnings or revenue guidance was provided. Management described liquidity and capital availability as healthy and said it would continue balancing acquisitions, internal investment, debt and shareholder returns.
- Management said it had no material exposure to Russian clients as of March 31, 2022, but would continue assessing the effects of Russia’s invasion of Ukraine and related sanctions and market disruption.
- Key stated risks include trading-volume, market-share and customer losses; execution and integration of acquisitions; technology reliability and cybersecurity; inflation, interest rates, foreign exchange and geopolitical instability; and the ability to generate cash and manage debt.
- Nasdaq’s Armenian Stock Exchange matter remains under discussion with OFAC. A potential civil monetary penalty is possible, but the company could not estimate a loss range and had not accrued a contingency.
- The SFSA administrative fine relating to the 2018 Nasdaq Clearing default was accrued in 2021; Nasdaq Clearing appealed the court decision upholding the fine in January 2022. Clearing operations expose Nasdaq to counterparty and liquidity risks, mitigated through collateral, default funds, capital and risk controls.
- Nasdaq was dismissed from the City of Providence litigation in May 2022 without financial compensation. The filing also reports an April 2022 plan to seek approval for a 3-for-1 stock split, expected in Q3 2022 if approvals are obtained, and an increase in the quarterly dividend to $0.60 per share.
Most important facts for investors to verify
- Whether recurring-revenue growth and deferred-revenue conversion continue to offset weaker trading-related revenue and market activity.
- How much of reported cash is unrestricted: clearing-related restricted cash is substantial and should not be treated as freely available liquidity.
- The impact of the OCC earnings decline, Verafin integration and amortization, and higher compensation, technology and interest costs on future GAAP earnings.
- The outcome and potential financial exposure of the OFAC matter and Nasdaq Clearing’s appeal concerning the SFSA fine.
- Completion and terms of the 2024 Notes redemption, the announced dividend increase and proposed stock split, subject to required approvals.