Nasdaq OMX Group (NDAQ)

Q1 2012 Earnings Call

April 25, 2012 8:00 am ET


John Sweeney -

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

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


Alex Kramm - UBS Investment Bank, Research Division

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

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

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

Howard Chen - Crédit Suisse AG, Research Division

Michael Carrier - Deutsche Bank AG, Research Division

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Daniel Thomas Fannon - Jefferies & Company, 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 First Quarter 2012 Results. [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.

John Sweeney

Thank you, operator, and good morning, everyone. And thanks for joining us today to discuss NASDAQ OMX's First Quarter 2012 Earning Results. Joining me today are Bob Greifeld, our Chief Executive Officer; and Lee Shavel, our Chief Financial Officer; Ed Knight, our General Counsel, joins us as well.

Following our prepared remarks, we'll open up the line to Q&A. You can access the result, press release and the presentation on NASDAQ OMX's investor website, We intend to use our website as a means of disclosing material nonpublic information and for complying with disclosure obligations under SEC Regulation FD. And these disclosures will be included under 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 subsequent 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 Reform Act of 1995. The actual results may differ materially from those projected in those forward-looking statements. Information concerning factors 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, and thanks -- thank you, everybody, for joining us on this call this morning. I would first like to thank Vince, who has done an excellent job for us in Investor Relations for NASDAQ OMX over the past 6 years. Vince is assuming increased responsibility in our market data group, where I'm sure he will continue his success driving that business. So thank you, Vince.

We're also, obviously, pleased that John Sweeney joined us today. He's our new VP of Investor Relations, and I'm sure all of you will enjoy getting to know John. I'll begin by spending a few minutes highlighting our results and then update you on our plans going forward. Lee will then walk you through the detailed financials.

For the first quarter, our net exchange revenues were $411 million compared to $413 million in the prior year, up 1% when you exclude the impact of currency changes. Our non-GAAP EPS was $0.61, the same level as the prior year quarter and also equaling our fourth best performance ever. This solid performance concerning the weak U.S. trading environment reflects the benefit of the diverse non-transaction driven businesses that we've built over the past several years. And that now represents over 2/3 of our net exchange revenues.

In short, while our combined net cash equity trading and derivatives revenues were down $15 million from the prior year quarter due to volumes, revenues from our other businesses were up $13 million continuing to grow across the board.

Net exchange revenues in our volume-based trading and clearing businesses of $127 million declined compared to the prior quarter as a result of the challenging volume environment. In the U.S., derivatives trading clearing -- once again, we had a leading market share. However, revenues were down $6 million versus the prior year. Please remember that U.S. equity trading and derivatives revenue increased an impressive 45% year-on-year in the first quarter 2011, so we faced a very difficult comparison this quarter.

Our European derivatives revenues were flat compared to the prior year if you do not consider the impact of currency. U.K. energy continues to perform well on both the NASDAQ OMX Commodities and N2Ex platforms. Total cleared volumes reached 36 terawatt hours during the first quarter of 2012, an almost fourfold increase compared to the same quarter last year and up 65% compared to the fourth quarter of 2011.

In the U.S. cash equity markets, we continue to experience a low trading environment with only 6.83 billion shares of average daily volume this quarter. This is down from almost 8 billion shares in the first quarter of last year and is the lowest level we've seen in the last 4.5 years. NASDAQ OMX had a 21.3% share of total U.S. matched volume, up from 19.2% in the first quarter of 2011.

U.S. cash equity revenue capture was lower in the quarter, driven by higher volumes in our ISP volume incentive program. ISP is designed to attract retail and institutional order flows and rewards firms that exceed certain liquidity provision and execution requirements. We are optimizing pricing for the ISP program, so we expect our capture will improve as we move through the second quarter.

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