01—Abstract
Summary
Summary of the 10-Q filed August 4, 2011. Cited figures are marked; the original filing is the authoritative source.
NASDAQ OMX Group, Inc. (NDAQ) reported its financial results for the second quarter and first six months ended June 30, 2011.
The company demonstrated revenue growth across its Market Services, Issuer Services, and Market Technology segments, driven by increases in access services, derivative trading and clearing, and corporate solutions. Total revenues less transaction rebates, brokerage, clearance, and exchange fees saw a 6.7%a increase in the quarter and a 10.8% increase year-to-date. Operating expenses also rose, largely due to merger and strategic initiative costs related to the NYSE Euronext acquisition proposal, though excluding these, operational increases were more moderate.
Net income attributable to NASDAQ OMX for the quarter was $92 millionb ($0.51 per diluted share), an increase from the prior year. For the first six months, net income was $196 million ($1.09 per diluted share). The company maintained a strong liquidity position with cash and cash equivalents increasing significantly to $578 million.
Despite market challenges like declining cash equity trading volumes, NASDAQ OMX strategically managed its operations, with a strong focus on technology and expanding services. Investors should note the ongoing legal and tax matters, particularly concerning the Finnish and Swedish tax authorities, which are being managed by the company.
02—Key points
Key Highlights
- Total revenues less transaction rebates, brokerage, clearance and exchange fees increased by 6.7% year-over-year for the second quarter to $416 million and by 10.8% for the first six months to $831 million.
- Market Services revenue grew 2.6% year-over-year in Q2 and 10.8% year-to-date, driven by strong performance in derivative trading and clearing and access services, partially offset by declining U.S. cash equity trading.
- Issuer Services revenue increased by 8.1% in Q2 and 8.2% year-to-date, with Corporate Solutions and European listing services showing particular strength.
- Market Technology revenue saw significant growth, up 35.3% in Q2 and 30.9% year-to-date, primarily driven by change request, advisory, broker surveillance, and delivery project revenues.
- Operating expenses increased by 22.3% in Q2 and 6.5% year-to-date, significantly impacted by merger and strategic initiative costs related to the NYSE Euronext proposal. Excluding these, operational expense increases were more modest.
- Net income attributable to NASDAQ OMX was $92 million ($0.51 per diluted share) for the second quarter and $196 million ($1.09 per diluted share) for the first six months, showing an improvement from the prior year periods.
- Cash and cash equivalents significantly increased to $578 million as of June 30, 2011, reflecting strong cash flow from operations which more than doubled year-over-year.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2011, Nasdaq, Inc. kept $0.11.
- Revenue$837.0M100.0%
- Cost of revenue−$422.0M50.4%
- Gross profit$415.0M49.6%
- Operating costs−$257.0M30.7%
- Operating income$158.0M18.9%
- Interest, other & tax−$66.0M7.9%
- Net income$92.0M11.0%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2011filed August 4, 2011Financial Statements
Q2 FY2011 against Q2 FY2010
| Line item | Q2 FY2011Q2 FY2010 | Change |
|---|---|---|
| Revenue | $837.00M$886.00M | −5.5% |
| Cost of Revenue | $422.00M$496.00M | −14.9% |
| Gross Profit | $415.00M$390.00M | +6.4% |
| Operating Expenses | $257.00M$211.00M | +21.8% |
| Operating Income | $158.00M$179.00M | −11.7% |
| Interest Expense | $31.00M$26.00M | +19.2% |
| Net Income | $92.00M$96.00M | −4.2% |
| EPS (Basic) | $0.17$0.15 | +13.0% |
| EPS (Diluted) | $0.17$0.15 | +10.9% |
| Shares Outstanding (Basic) | 529.94M616.55M | −14.0% |
| Shares Outstanding (Diluted) | 541.55M628.24M | −13.8% |
05—Questions
Frequently Asked Questions
How did NASDAQ OMX's revenue performance compare to the prior year?
NASDAQ OMX reported growth in its key revenue streams. For the second quarter, total revenues less transaction rebates, brokerage, clearance and exchange fees increased by 6.7% to $416 million compared to the prior year. For the first six months, this figure grew by 10.8% to $831 million. This growth was broad-based, with strong contributions from Market Services (excluding cash equity trading), Issuer Services, and significant acceleration in Market Technology.
What were the main drivers of the increase in operating expenses?
Operating expenses increased due to several factors, most notably merger and strategic initiative costs related to the joint proposal to acquire NYSE Euronext, which incurred significant advisor and legal fees. Other contributing factors included increased compensation and benefits, partly due to acquisitions and higher performance-based costs, and computer operations. While total operating expenses rose, a significant portion of the increase in the second quarter was attributable to these non-recurring strategic initiative costs.
What is the company's current liquidity position?
NASDAQ OMX's liquidity position strengthened considerably. Cash and cash equivalents increased by 83.5% from December 31, 2010, to $578 million as of June 30, 2011. This increase was primarily driven by strong net cash provided by operating activities, which more than doubled year-over-year, indicating robust cash generation from the core business operations.
Are there any significant legal or tax matters that investors should be aware of?
The company is involved in ongoing tax matters, including an appeal from the Finnish Tax Authority regarding interest expense deductions and a Swedish tax ruling appeal. While NASDAQ OMX believes it will prevail in these matters, potential additional taxes and penalties could be incurred. Additionally, the company is subject to ongoing audits by tax authorities in various jurisdictions. Investors should monitor developments in these tax matters as disclosed in the filing.
06—Continue