Nasdaq, Inc. — Q2 2021 Form 10-Q
Business context and period. Nasdaq operates market services, corporate platforms, investment intelligence, and market technology businesses. This unaudited report covers the quarter and six months ended June 30, 2021; comparisons are with the same periods in 2020. Results include Verafin from its February 2021 acquisition. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $1,412 | $1,398 | $3,064 | $2,751 |
| Revenue less transaction-based expenses | $846 | $699 | $1,697 | $1,400 |
| Operating income | $376 | $315 | $741 | $590 |
| Net income attributable to Nasdaq | $341 | $241 | $639 | $444 |
| Diluted EPS | $2.05 | $1.45 | $3.83 | $2.67 |
| Operating cash flow | — | $467 | $821 |
- Q2 revenue less transaction-based expenses rose 21%; operating income rose 19% and diluted EPS rose 41%. Six-month figures increased 21%, 26%, and 43%, respectively.
- Q2 operating margin on revenue less transaction-based expenses was approximately 44%, versus 45% a year earlier; the six-month margin was approximately 44%, versus 42%.
- Q2 included an $84 million pre-tax gain from selling the U.S. Fixed Income business. Higher net income therefore partly reflects this unusual item.
- Growth in Q2 revenue less transaction-based expenses was broad: Corporate Platforms increased 22%, Investment Intelligence 24%, and Market Technology 39%. Market Services increased 13% on this basis despite lower reported segment revenue, reflecting reduced transaction-based expenses.
Liquidity, debt and capital returns
- At June 30, cash and cash equivalents were $390 million, restricted cash $40 million, and financial investments $235 million. Cash and cash equivalents were down from $2.745 billion at year-end, primarily reflecting the Verafin acquisition, buybacks, and dividends.
- Total debt obligations were $5.701 billion, including $221 million of commercial paper and $5.480 billion of long-term debt. The $1.25 billion revolving facility had no borrowings; $1.029 billion remained available after commercial-paper support. Additional European credit facilities of $223 million were unused. Nasdaq reported compliance with debt covenants.
- Working capital was $122 million, down from $2.736 billion at year-end, substantially reflecting lower cash and changes in clearing-related balances.
- Six-month operating cash flow was $467 million, down from $821 million. Management cited a $221 million Verafin-related tax payment, a $102 million acquisition-related payment subject to employment conditions, lower SEC fee payables, and working-capital movements.
- Investing cash outflow was $2.435 billion, including $2.430 billion for acquisitions; financing cash outflow was $380 million. Nasdaq repurchased $410 million of shares and paid $169 million in dividends during the first half.
Material changes and developments
- Verafin was acquired for approximately $2.75 billion and added to Market Technology; the acquisition contributed to higher revenue and expenses, including amortization, compensation, and technology costs.
- Nasdaq sold its U.S. Fixed Income business to Tradeweb in June, recognizing the $84 million gain. The sale triggered issuance of approximately 6.2 million shares under a prior contingent share arrangement. The company increased its repurchase authorization to $1.5 billion to help offset dilution.
- In July, Nasdaq entered a $475 million accelerated share repurchase agreement, initially receiving approximately 2.04 million shares; final settlement was expected in Q4 2021. Nasdaq also issued €615 million of 0.900% notes due 2033 and called its €600 million 1.75% notes due 2023 for redemption.
- In July, Nasdaq approved a $0.54 per-share quarterly dividend. It also contributed Nasdaq Private Market to an independent company in exchange for its largest minority interest alongside a bank consortium.
- Listing activity was strong: the Nasdaq Stock Market reported 135 Q2 IPOs, including 47 SPACs, and a 78% total U.S. IPO win rate. ETP assets tracking Nasdaq indexes were $415 billion, up 53% year over year.
Outlook, risks and contingencies
- Management said operating cash generation, the revolving credit facility, and the commercial paper program should provide sufficient near-term funding for operations, capital expenditures, debt repayments, repurchases, and dividends. No specific earnings or revenue guidance was provided in the supplied filing text.
- Management reported no material COVID-19 impact on financial position or results and no material impairment charges for the periods presented. It intends to balance acquisitions, internal investment, debt repayment, and shareholder returns.
- Key risks include trading volumes, market share and customer retention; integration of acquisitions; technology reliability and cybersecurity; foreign exchange and interest-rate movements; access to funding; and regulatory or litigation outcomes.
- The Swedish Financial Supervisory Authority imposed an approximately $35 million fine on Nasdaq Clearing in January 2021 relating to its review of a 2018 commodities clearing-member default. Nasdaq Clearing appealed; no accrual was recorded because the outcome could not be reasonably estimated. The filing reported that expected recoveries and a capital-relief program represented about 80% of the initial default loss, with the remainder expected during 2021.
- OFAC was considering a civil monetary penalty related to a former Armenian subsidiary’s dealings with a sanctioned market participant. Nasdaq was in discussions with OFAC, could not estimate a potential loss, and had not accrued one. The Providence securities-market litigation also remained pending; Nasdaq said it could not estimate potential liability.
Important facts for investors to verify
- How much of earnings growth is recurring versus attributable to the $84 million divestiture gain and acquisition-related effects.
- Verafin’s continuing revenue contribution, integration costs, purchase-price allocation, and effect on leverage and cash generation.
- Progress and final share delivery under the $475 million ASR, and the timing and scale of planned repurchases intended to offset the 6.2 million-share issuance.
- Cash conversion and liquidity after the acquisition-related outflows, including the commercial-paper balance and debt refinancing/redemption activity.
- Developments in the Nasdaq Clearing appeal, OFAC matter, and Providence litigation, including any change in the ability to estimate or accrue losses.