Nasdaq, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited and prepared under U.S. GAAP. Nasdaq operates exchange and market technology businesses, listing, data, index and workflow solutions, and anti-financial-crime software. Segment results reflect the structure introduced in 2022; prior periods were recast for comparison.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $1.533 billion | $1.535 billion | -0.1% |
| Revenue less transaction-based expenses | $914 million | $892 million | +2.5% |
| Operating income | $412 million | $405 million | +1.7% |
| Net income attributable to Nasdaq | $302 million | $284 million | +6.3% |
| Diluted EPS | $0.61 | $0.57 | +7.0% |
| Operating margin on revenue less transaction expenses | 45.1% | 45.4% | Lower |
| Cash provided by operating activities | $565 million | $605 million | Down $40 million |
Operating cash flow less capital expenditures was approximately $525 million, compared with $570 million a year earlier; this is a simple calculation from reported cash flow and property-and-equipment purchases, not a company-defined measure. Cash and cash equivalents were $373 million at quarter-end, versus $502 million at year-end 2022. Restricted cash includes substantial clearing-member collateral and should not be treated as freely available corporate cash.
Segments and material changes
- Market Platforms: Revenue was $1.032 billion, down 0.7%; after transaction-based expenses, segment revenue was $413 million, up 4.3%. Trading Services net revenue rose 1.1% to $267 million and Marketplace Technology revenue rose 10.6% to $146 million. Cash-equity trading revenue fell 18.5%, while transaction rebates also declined.
- Capital Access Platforms: Revenue was $416 million, down 0.7%. Data & Listing Services rose 2.2% and Workflow & Insights rose 4.3%; Index revenue fell 9.8%, primarily from lower asset-based licensing revenue linked to the Nasdaq-100.
- Anti-Financial Crime: Revenue rose 16.7% to $84 million, driven by demand for fraud detection and anti-money-laundering solutions.
- Recurring-business indicators grew: ARR was $510 million for Marketplace Technology, $1.204 billion for Capital Access Platforms and $321 million for Anti-Financial Crime. These are company-defined measures, not forecasts.
- IPO activity was weaker year over year: Nasdaq reported 40 U.S. IPOs, versus 70, including 10 SPACs versus 43. Management said Nasdaq led U.S. exchanges for Q1 IPOs, with a 91% IPO win rate.
Liquidity, debt and capital returns
- Total debt obligations were $5.109 billion, including $347 million of commercial paper; long-term debt was $4.762 billion. Commercial paper declined from $664 million at December 31, 2022. No borrowings were outstanding under the $1.25 billion revolving credit facility, which matures in December 2027; Nasdaq was in compliance with debt covenants.
- Nasdaq reported $185 million of additional available European credit facilities, none utilized. Working capital was negative $164 million, an improvement of $67 million from year-end.
- Financing cash outflow was $613 million, including $317 million of net commercial-paper repayments, $159 million of share repurchases and $98 million of dividends.
- The board approved a quarterly dividend of $0.22 per share in April, up 10% from $0.20. The repurchase authorization remaining at March 31 was $491 million.
Outlook, commentary, risks and unusual items
- Management said operating cash flows and available revolving-credit and commercial-paper capacity are expected to fund near-term operating expenses, capital spending, debt repayments and shareholder returns. The filing provides no specific earnings or revenue guidance.
- The divisional-alignment program is expected to generate $115 million to $145 million of pretax charges over two years. Nasdaq recorded $18 million of restructuring charges in Q1 and expects approximately $30 million of annual run-rate operating efficiencies and revenue synergies by 2025.
- A review of real-estate needs led to $17 million of lease and leasehold-improvement impairment charges, including exit costs, associated with vacated office space. Occupancy expense increased 44.4% year over year.
- Interest expense rose to $36 million from $32 million, mainly reflecting higher rates on commercial paper. Net income from equity-method investees, primarily OCC, increased to $14 million from $7 million.
- Contingencies: Nasdaq is discussing a potential civil monetary penalty with OFAC concerning historical Armenian Stock Exchange activity; an immaterial loss contingency was accrued. A former subsidiary received a CFTC Wells Notice concerning alleged conduct in 2015–2018. Nasdaq disputes the allegations, cannot estimate a potential loss and recorded no accrual; the matter could adversely affect results or reputation and could be material.
- Key risks cited include trading-volume and market-share declines, technology and cybersecurity failures, economic and foreign-exchange volatility, credit and clearing risks, access to financing, and regulatory or litigation outcomes. Nasdaq reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track whether growth in Anti-Financial Crime, Marketplace Technology and subscription-based offerings offsets weakness in cash-equity trading, listings and Index revenue.
- Assess cash generation after working-capital movements, especially deferred revenue, SEC Section 31 fees payable and accrued personnel costs; distinguish corporate cash from restricted clearing collateral.
- Monitor commercial-paper balances, borrowing costs, credit-facility availability and compliance with debt covenants.
- Verify restructuring charges and whether the projected $30 million annual efficiencies and revenue synergies are achieved by 2025.
- Follow developments in the CFTC and OFAC matters, including any settlement, penalty or change in the company’s ability to estimate potential exposure.
- Compare capital returns and the announced dividend increase with operating cash flow, debt levels and remaining repurchase authorization.