Business context and reporting period
Nasdaq, Inc. filed this Form 10-K for the fiscal year ended December 31, 2021. The company operates four segments: Market Technology, Investment Intelligence, Corporate Platforms and Market Services. This is an annual report; the supplied filing text does not provide standalone fourth-quarter results.
Financial performance and liquidity
Amounts below are in U.S. dollars. Nasdaq’s reported “revenues less transaction-based expenses” is a key measure because it deducts trading rebates and brokerage, clearance and exchange fees from total revenue.
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Total revenue | $5.886 billion | $5.625 billion | +4.6% |
| Revenue less transaction-based expenses | $3.420 billion | $2.903 billion | +17.8% |
| Operating income | $1.441 billion | $1.234 billion | +16.8% |
| Net income attributable to Nasdaq | $1.187 billion | $933 million | +27.2% |
| Diluted EPS | $7.05 | $5.59 | +26.1% |
| Operating cash flow | $1.083 billion | $1.252 billion | Down $169 million |
| Cash dividends declared per share | $2.11 | $1.94 | +8.8% |
Operating income was 42.1% of revenue less transaction-based expenses (24.5% of total revenue). These are calculated ratios, not company-reported margin measures. FY 2021’s U.S. GAAP effective tax rate was 22.6%, versus 23.0% in 2020. Non-GAAP diluted EPS was $7.56, versus $6.18; the company’s non-GAAP adjustments included acquired-intangible amortization, strategic transaction costs and other items.
At year-end, cash and cash equivalents were $393 million, financial investments were $208 million, and total debt was $5.830 billion, including $420 million of commercial paper and $1.018 billion of short-term debt. The $1.25 billion revolving credit facility had no borrowings; $830 million was available beyond the amount supporting commercial paper. Nasdaq reported compliance with debt covenants and said near-term operating cash and available facilities should be sufficient for operating needs, capital spending, debt repayment and shareholder returns. Working capital was negative $449 million, largely reflecting acquisition-related cash use, short-term debt and deferred revenue. Cash-flow totals include substantial restricted clearing-member funds and margin deposits, which are not available for general corporate use.
Operating expenses rose 18.6% to $1.979 billion, including higher compensation, depreciation and amortization, regulatory costs, and merger and strategic initiative costs. Operating cash flow fell primarily due to a $221 million acquisition-related tax payment on Verafin and a $102 million payment subject to employment-related conditions.
Material changes versus the prior comparable period
- Segment performance: Market Technology revenue increased 29.7% to $463 million, largely reflecting Verafin, acquired in February 2021. Investment Intelligence rose 19.8% to $1.076 billion, led by index licensing; Corporate Platforms rose 17.7% to $613 million, supported by listings. Market Services revenue declined 2.9% to $3.707 billion, while its revenue less transaction-based expenses increased to $1.241 billion from $1.096 billion.
- Trading and listings: U.S. options industry average daily volume increased, but Nasdaq’s options matched market share declined to 34.4% from 36.8%. U.S.-listed cash-equity matched market share fell to 17.1% from 18.3%; total market share including FINRA/Nasdaq Trade Reporting Facility activity increased to 52.0% from 50.1%. Nasdaq attracted 1,000 new U.S. listings, including 752 IPOs, versus 454 new listings and 316 IPOs in 2020.
- Portfolio changes: Nasdaq sold its U.S. Fixed Income business in June, recording an $84 million pre-tax gain, and contributed Nasdaq Private Market to an independent venture in which it retained the largest minority interest. It acquired a majority stake in Puro.earth and acquired QDiligence in December. The Verafin acquisition’s aggregate purchase price was $2.75 billion; the reported purchase consideration allocation was $2.651 billion.
- Capital allocation and debt: Nasdaq repurchased $468 million of shares through its program and $475 million under an accelerated share repurchase, and paid $350 million in dividends. It issued €615 million of 0.900% notes due 2033 and used the proceeds primarily to redeem the 2023 notes. Debt increased from $5.541 billion to $5.830 billion.
Outlook, commentary, risks and unusual items
The filing gives no specific quantified financial guidance. Management’s stated priorities include growing anti-financial-crime technology, index and analytics, governance and ESG offerings; expanding SaaS adoption; and investing in core marketplaces while reducing emphasis on less strategic businesses. Nasdaq announced a multi-year AWS partnership to migrate North American exchanges to the cloud in phases beginning in 2022. Management also said it expected to transition toward hybrid work during 2022.
Material risks include volatile trading volumes and market conditions; intense pricing and market-share competition; system outages, cyberattacks and reliance on third-party cloud providers; acquisition integration and goodwill impairment; clearing-member default, credit and liquidity exposure; and regulatory changes that could affect proprietary data and tape-plan revenues. The SFSA’s approximately $33 million fine related to the 2018 commodities clearing default was accrued in 2021; Nasdaq appealed the decision. Nasdaq also disclosed an unresolved OFAC inquiry concerning a former Armenian subsidiary, for which it could not estimate a potential penalty, and ongoing class-action litigation relating to high-frequency trading, for which potential liability was not estimable. Nasdaq challenged SEC market-data and securities-information-processor governance actions; the timing and effect of implementation remained uncertain.
Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting. The auditor identified market-technology revenue recognition and the Verafin acquisition valuation as critical audit matters. Nasdaq reported no goodwill or indefinite-lived intangible impairment in 2021, but recorded a $14 million finite-lived intangible impairment.
Important facts for investors to verify
- How much of Market Technology and overall growth is recurring or attributable to Verafin, and whether SaaS growth and contract bookings translate into recognized revenue and cash flow.
- Whether Market Services can sustain net revenue growth amid lower U.S. matched market shares, changing trading volumes and regulatory pressure on market-data economics.
- Verafin integration, acquisition-related costs, the acquired intangible-asset assumptions and the company’s capacity to manage $5.830 billion of debt and upcoming maturities.
- The outcome and potential financial impact of the SFSA fine appeal, OFAC discussions, Providence litigation and the SEC market-data and governance challenges.
- How much reported cash and liquidity is freely available after excluding restricted clearing funds, and whether capital returns remain supportable alongside investment and debt obligations.