10-QPeriod: Q1 FY2013

NASDAQ, INC. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 7, 2013For Securities:NDAQ

Summary

For the first quarter of 2013, NASDAQ, INC. (NDAQ) reported a notable decrease in net income attributable to NASDAQ OMX, falling to $42 million ($0.25 per diluted share) from $85 million ($0.48 per diluted share) in the same period of the prior year. This decline was primarily driven by a significant increase in operating expenses, notably due to a $62 million voluntary accommodation program related to the Facebook IPO systems issues and a $10 million reserve for an SEC matter. Revenues, on a "less transaction rebates, brokerage, clearance and exchange fees" basis, saw a slight increase of 1.0% to $418 million, supported by growth in Information Services and Technology Solutions segments, though this was partially offset by a decline in Market Services revenues. The company also announced an agreement to acquire eSpeed for trading U.S. Treasuries for approximately $750 million in cash, plus contingent stock, indicating a strategic move into fixed-income trading. Despite the near-term profitability dip due to one-time charges, NASDAQ is actively pursuing strategic acquisitions and demonstrating a commitment to returning capital to shareholders through dividends, although its share repurchase program was temporarily suspended.

Financial Highlights

55 data points
Beta

Revenue

$744.00M

56.2% Gross Margin

Net Income

$42.00M

5.6% Net Margin

EPS (Diluted)

$0.08

Total Assets

$9.19B

Cash & Equivalents

$591.00M

Free Cash Flow

$129.00M

Financial Statements
Beta
Revenue$744.00M
Cost of Revenue$326.00M
Gross Profit$418.00M
Operating Expenses$328.00M
Operating Income$90.00M
Interest Expense$24.00M
Net Income$42.00M
EPS (Basic)$0.09
EPS (Diluted)$0.08
Shares Outstanding (Basic)497.11M
Shares Outstanding (Diluted)508.99M

Key Highlights

  • 1Net income attributable to NASDAQ OMX decreased by 50.6% to $42 million ($0.25/share) compared to $85 million ($0.48/share) in Q1 2012.
  • 2Revenues (less transaction rebates, brokerage, clearance, and exchange fees) increased slightly by 1.0% to $418 million from $414 million year-over-year.
  • 3Operating expenses surged by 35.0% to $328 million, largely due to a $62 million voluntary accommodation program for Facebook IPO system issues and a $10 million reserve for an SEC matter.
  • 4The company announced an agreement to acquire eSpeed for U.S. Treasury trading for approximately $750 million in cash plus contingent stock, signaling expansion into fixed income.
  • 5Market Services segment revenue decreased by 4.2% to $182 million, impacted by lower cash equity trading volumes.
  • 6Information Services and Technology Solutions segments showed growth, with revenues increasing by 5.9% and 10.6% respectively.
  • 7The company declared and paid a cash dividend of $0.13 per common share in Q1 2013 and announced a similar dividend for Q2 2013.

Frequently Asked Questions

The primary driver for the substantial decrease in net income was a significant increase in operating expenses. This included a $62 million voluntary accommodation program related to the Facebook IPO system issues and a $10 million reserve for an SEC matter, which are non-recurring or one-time charges. While revenues saw a slight increase, these substantial expense increases outweighed the revenue growth.

NASDAQ is pursuing growth through strategic acquisitions and diversification. A significant announcement in the quarter was the agreement to acquire eSpeed, a platform for U.S. Treasury trading, which expands its reach into the fixed-income market. The company also continues to see growth in its Information Services and Technology Solutions segments, indicating ongoing strategic focus in these areas.

The Market Services segment experienced a revenue decrease of 4.2% to $182 million. This decline was primarily attributed to lower cash equity trading revenues, impacted by reduced industry trading volumes and a decrease in NASDAQ's matched market share. While U.S. derivative trading and clearing showed a slight increase, overall segment performance was affected by weaker equity markets.

NASDAQ's share repurchase program was temporarily suspended in April 2013. However, the company continued to return capital to shareholders by declaring and paying a cash dividend of $0.13 per common share in the first quarter of 2013 and announced a similar dividend for the second quarter. This demonstrates a commitment to shareholder returns even with the suspension of buybacks.