Nasdaq OMX Group (NDAQ)

Q2 2010 Earnings Call

July 27, 2010 8:00 am ET

Executives

Edward Knight - Chief Regulatory Officer, Executive Vice President and General Counsel

Vince Palmiere - Vice President of Investor Relations & Nasdaq Corporate Finance and Head of Nasdaq Activities

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

Adena Friedman - Chief Financial Officer and Executive Vice President of Corporate Strategy

Analysts

Alex Kramm - UBS Investment Bank

Celeste Brown - Morgan Stanley

Jillian Miller - BMO Capital Markets

Michael Carrier - Deutsche Bank AG

Michael Wong - ThinkEquity

Richard Repetto - Sandler O`Neill

Howard Chen - Crédit Suisse AG

Daniel Fannon - Jefferies & Company, Inc.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Matthew Heinz - Jefferies & Company

Niamh Alexander - Keefe, Bruyette & Woods

Justin Schack - Rosenblatt Securities

Roger Freeman - Barclays Capital

Daniel Harris - Goldman Sachs Group Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the NASDAQ OMX Second Quarter 2010 Results Conference Call. [Operator Instructions] I'd now like to turn the conference over to your host, Mr. Vince Palmiere, Vice President of Investor Relations. Please go ahead, sir.

Vince Palmiere

Thank you, operator. Good morning, and thank you for joining us today to discuss our second quarter 2010 earning results. Joining me are Bob Greifeld, Chief Executive Officer; Adena Friedman, our Chief Financial Officer; and Ed Knight, our General Counsel.

Following our prepared remarks, we'll open up the line for Q&A. You can access the results, press release and presentation on the NASDAQ OMX Investor Relations website at www.nasdaqomx.com. We intend to use our website as a means of disclosing material non-public 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.

Before I turn the call over to Bob, I’d like to remind you that certain statements in the 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 these forward-looking statements. Information containing factors that could cause actual results to differ from forward-looking statements is contained in our press release and in our periodic reports filed with the SEC. With that, I'll turn the call over to Bob.

Robert Greifeld

Thank you, Vince, and thank you, everyone, for joining us this morning to discuss our second quarter 2010 results. I'll begin by spending a few minutes highlighting the quarter and then update you on the progress of our initiatives. Adena will then walk you through the financials in detail.

This morning, we reported a net income of $96 million or $0.46 per diluted share. On a non-GAAP basis, net income was $108 million or $0.52 per diluted share, very strong results, as this reflects an increase of 21% in EPS when compared to the first quarter of 2010 and matches our previous high of $0.52 achieved during the fourth quarter of 2008.

Also during the quarter, net revenues increased $30 million or 8% from the first quarter of 2010, coming in at $390 million. When we spoke last quarter, I discussed how the core fundamentals of our business were strong, and our results this quarter clearly demonstrate this to be the case. Volumes were up in nearly all of the products in which we trade. Our market share in U.S. cash equities has remained stable, while it continues to grow in options. Company listings have grown on the strength of new listings, and demand for co-location continues to increase, while clustered demand for our listed companies’ Corporate Services has also grown.

This quarter, just about every aspect of our business improved. Within Transaction Services, U.S. Cash Equity Trading revenues were up nearly 70% from the first quarter of 2010 and 26% from the second quarter of 2009. Volume matched by NASDAQ and BX totaled 148 billion shares in the quarter, up 17% when compared to the first quarter of 2010 and up 4% from levels realized in the second quarter of 2009.

Our market share has remained stable, with NASDAQ and BX combined share coming in at nearly 23% in the second quarter of 2010, down slightly from 24% in the first quarter but up from the 21% realized in the second quarter of last year. By staying in constant contact with our customers, we've been able to deliver continued improvements in our trading products and services.

This quarter, we realized higher revenues through a better mix of business from market participants, yielding more favorable rates for Cash Equities. We've also seen strong demand for Co-Location and other Access Services, as revenues in the quarter grew 28% from prior-year levels. The combined revenues for U.S. Cash Equity Trading and Access Services in the second quarter of 2010 was $95 million. What's interesting about this figure, it is that it’s equal. This figure is equal to combined revenue we generated from these two business areas in the fourth quarter of 2008, a period which is generally viewed as the high-water mark for NASDAQ in the Cash Equity business.

We were able to match our fourth quarter 2008 revenues, despite the fact that in the second quarter of 2010, our matched volumes were 25% lower than they were at the height of the financial crisis. We have made a conscious effort over the past year to shift the mix of revenues in the U.S. Cash Equities business to include a balance of transactional and recurring revenues, and we feel this quarter truly demonstrates how well we have achieved that balance.

Additionally, the performance in the most recent quarter demonstrates that contrary to the views of some, the Cash Equities business has a strong and stable foundation and compelling growth dynamics.

Now turning to our U.S. Options business. Our average capture rate remained relatively stable for the quarter, while we were able to grow market share, with total share coming in at 25.1% in the second quarter, up from 23.8% in the first quarter of this year and 21.3% in the second quarter of last year. This growth in shares speaks to the continued success of the maker-taker model that we implemented at PHLX earlier this year. And the NASDAQ Options Market now continues to make progress as it now regularly achieves share in excess of 5%. In fact, for the month of July, our total share, including PHLX and NOM, is approximately 26%.

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