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Nasdaq OMX Group (NDAQ)

Q2 2012 Earnings Call

July 25, 2012 8:00 am ET


John Sweeney

Robert Greifeld - Chief Executive Officer, President, Staff Director, Member of Executive Committee and Member of Finance Committee

Lee Shavel - Chief Financial Officer and Executive Vice President of Corporate Strategy

Eric W. Noll - Executive Vice President of Transaction Services - US and UK


Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

Christopher J. Allen - Evercore Partners Inc., Research Division

Michael Carrier - Deutsche Bank AG, Research Division

Roger A. Freeman - Barclays Capital, Research Division

Brian Bedell - ISI Group Inc., Research Division

Howard Chen - Crédit Suisse AG, Research Division

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division

Jillian Miller - BMO Capital Markets U.S.



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Good day, ladies and gentlemen, and welcome to the NASDAQ OMX Second Quarter 2012 Results Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to your host, Mr. John Sweeney, Vice President of Investor Relations. Please go ahead, sir.

John Sweeney

Thank you, operator, and good morning, everyone. Thanks for joining us today to discuss NASDAQ OMX's second quarter 2012 earnings results. With me today are Bob Greifeld, our Chief Executive Officer; and Lee Shavel, our Chief Financial Officer. Ed Knight, General Counsel, joins us as well.

Following the prepared remarks, we'll open up to Q&A. You can access the results, the press release and the presentation of NASDAQ OMX's Investors website, We intend to use our website as a means of disclosing material non-public information in complying with disclosure obligations and SEC Regulation FD, and these disclosures will be included on the Events and Presentations section of the site.

Now, before I turn the call over to Bob, I'd like to remind you that certain statements in this prepared presentation and during the Q&A period may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation and Reform Act of 1995. The actual results may differ materially from those projected in these forward-looking statements. Information concerning that could cause actual results to differ from forward-looking statements is contained in our press release and other periodic reports filed with the SEC.

And with that, I'll turn the call over to Bob.

Robert Greifeld

Thank you, John. Your introduction will become longer than my comments soon enough. For the second quarter of 2012, our non-GAAP exchange revenues were $413 million, down slightly to the -- compared to the $415 million in the prior-year quarter but up 3% when you exclude the net impact of acquisitions and the foreign currency charges. Our non-GAAP EPS was $0.64, up $0.02 compared to the prior-year quarter. This performance was achieved with a significant currency headwind. If exchange rates had held constant with prior-year levels, our non-GAAP EPS would have been $0.03 higher, tying our all-time record.

Given the weak trading volumes we are experiencing, this is a strong performance. We continue to see good growth on our non-transaction driven businesses, which are mainly recurring and subscription base. These revenues totaled $291 million and were up 4% compared to the second quarter of 2011. This growth was the result of 8% revenue growth in our global market data business. Access and brokerage services continue to perform well, up 12% driven by our new technology introductions. Our transaction-based businesses, equity and option trading in the U.S. and Europe, saw relatively weak volumes compounded by a weakening euro. Currency reduced our second quarter 2012 transaction revenues by $5 million year-over-year.

We did, however, continue to generate strong cash flow during the quarter. We have free cash flow of $185 million in the second quarter of 2012. We continued to be active in deploying that capital. In the second quarter, we bought back $125 million worth of shares, or 5.3 million shares, at an average price of $23.37. In addition, we paid our first dividend of $0.13 per share in June. So we continued to make good progress with capital deployment.

In the second quarter of 2012, access and broker services revenues were $66 million, up $7 million, or 12%, compared to the prior year. Our out-performance is driven by our unrelenting focus on innovation, which continues to deliver a pipeline of innovative new products, which are helping to reduce our customers' infrastructure costs and meet their performance requirements.

NASDAQ's ongoing investments in infrastructure and technology have resulted in an ecosystem that attracts and retains members, brokers and participants. Recent innovations include 40G connectivity. We have a very successful rollout of this product to our customer base and are experiencing continued solid uptick. 40G client connectivity provides customers at our data center the ability to access our U.S. markets through a single, ultra-low latency connection. Network latency on 40G has been observed by our clients being reduced by an average of 2 to 7 microseconds, round-trip, compared to 10G.

Our Super Cab offering provides customers at our data center with up to 17.3 kilowatts of power to operate in cool trading equipment within a single cabinet. This has many benefits for our customers obviously reduced cost but also reduced connectivity, latency, enhanced cooling capability and obviously has been very successful for us.

In Access Services, our pipeline is as full as it's ever been and you'll see us continue to introduce new products as we move forward. It is this focus that makes our corporate [ph] data center a must for all our customers and allowed us to grow our Access Services technology business at a double-digit rate even in this difficult market environment.

Moving onto Market Technology. This business delivers technology and services to market places, brokers and regulators throughout the world. Second quarter revenues were $44 million. Foreign currency negatively impacted the year-over-year comparison by about $5 million. During the quarter, we hosted our Technology of the Future Conference, ToF, in Stockholm in June and it was an extremely successful event. This was our largest Technology of the Future Conference ever with attendance up over 50% compared to the last conference.

At the show, we certainly took our customers through our product roadmap and our expectations for the future. It is clear that we're seeing acceleration in our Market Technology business. We're on track for a record year of new business wins and order take. In just the first 6 months of 2012, we achieved an order intake of $132 million. To put this in perspective, in 2011, we had a total order intake of $134 million for the full year. Our backlog has moved up to $529 million from $496 million in the first quarter of 2012.

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