Q4 2020 Nasdaq Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Ladies and gentlemen, thank you for standing by and welcome to the NASDAQ fourth quarter 2020 results. At this time all participants lines are in listen only mode. After the Speakers' presentation there.
There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker day, Mr. Edmar, Vice President of Investor Relations. Please go ahead Sir.
Good morning, everyone and thank you for joining us today to discuss nasdaq's fourth quarter and full year 2020 financial results on the liner Edina Friedman, our CEO, Michael <unk>, our CFO, John Zecca, our chief legal and regulatory officer, and Dennis <unk>, Our Chief accounting officer, and incoming CFO and other members of the management team.
After prepared remarks, we will open up to Q&A. The press release and presentation are on our website, we intend to use the website as a means of disclosing material nonpublic information and complying with disclosure obligations under SEC regulation FD.
To remind you that certain statements in this presentation and during Q&A 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 1095 actual results may differ materially from these projections information concerning factors that could.
Cause actual results to differ from forward looking statements is contained in our press release and periodic reports filed with the SEC I will now turn the call over to Athena.
Thank you Ed good morning, everyone and thank you for joining us before I begin my remarks, I would like to note that we're starting the new year at the depth of the Covid crisis, and we continue to focus on maintaining our employees health and safety, while executing on our critical role in facilitating capital raising liquidity and price discovery in the economies in which we and.
Our clients operate.
While we manage through this very challenging environment the rollout of the vaccines provide a new hope for 2021.
Throughout this health crisis I have remained extremely proud of the resilience of NASDAQ business, our team and our client community over the past year, we have deepened our partnerships with our clients and work together with them to ensure the resiliency of the capital markets to handle unprecedented volume and to fulfill peak near record levels of capital.
Raising across our listed companies.
Capital markets and the role NASDAQ plays within them have never been more important as a critical source of funding and liquidity for innovation and job creation, including vaccine research and production as well as for funding and liquidity needed to help companies whether through this very challenging period.
We remain steadfast and unwavering in our commitment to our employees our clients and our mission as we enter 2021.
My remarks today will focus on the following areas NASDAQ full year 2020 in fourth quarter of 2020 financial and business performance.
The progress we've made to drive NASDAQ forward, along our strategic direction and our ambitions for 2021 and beyond.
Turning to our results I'm very pleased to report Nasdaq's strong financial performance for the fourth quarter and full year of 2020.
First for the fourth quarter, we achieved $788 million and net revenues in the fourth quarter of 2020, or 22% increase compared to the prior year period, while non-GAAP earnings per share of $1 60 rose, 24% compared to the fourth quarter of 2019.
Turning to the full year of 2020, we generated total net revenues of $2 $9 billion, including 10% organic revenue growth from our solutions segments, along with 21% organic growth revenue increase from our market services segment due primarily to elevated trading volumes in U S equities and options total organic revenue growth for the year.
14%.
In terms of the annualized recurring revenue or <unk>.
<unk> and software as a service or SaaS revenue disclosures, we introduced at our November 22020 Investor Day.
<unk> ended the year at $1 five 8 billion in the fourth and of the $1 $58 billion in the fourth quarter of 2020 up 9% year over year and annualized SaaS revenue was $456 million up 11% year over year. The strong development across these types of revenues creates a healthy core to build off.
Going forward independent of fluctuating trade volumes or market level.
2020 was another year of robust execution for NASDAQ against the unique operating environment that none of us could have predicted a year ago. The strong results from the fourth quarter highlight the strength of nasdaq's diversified product offering and business model, which allowed us to address the needs of our clients and a unique capital markets environment, including periods of elevated trading volumes.
Rising benchmark index valuations and a very strong period of new listings and capital formation.
Throughout the year, we also continued to invest organically and inorganically to advance our offerings.
By our strategy to maximize opportunities as a technology and analytics provider, while also investing to sustain the strong competitive position of our core marketplace Foundation.
Does have a strong performance for the year and in particular, the very strong finish in the fourth quarter. We enter 2021 with incredible momentum. We now have begun our fourth year since the 2017 announcement of our new vision for NASDAQ our full year results illustrate how we can deliver on our strategy and more importantly, how our disciplined client.
<unk> focus is creating value not just for our clients, but for all of our stakeholders.
Now I'm going to turn to specific highlights from our businesses focusing mainly on fourth quarter results.
Our investment intelligence segment delivered $247 million in net revenue during the fourth quarter of 27% increase from the prior year period, primarily driven by especially strong momentum in index licensing as well as positive contributions from both analytics and the end market data.
We set new quarterly highs in both our index revenues of $97 million and end of period ETP assets under management tracking NASDAQ indexes of $359 billion.
As we noted in our Investor day presentation. Our investment intelligence segment has been repositioned for improved growth as we look to deepen our engagement with asset managers asset owners and consultants and the clients from our market data and index franchises.
We are diligently focused on building out this business to be the essential partner to the investment community.
As we move into 2021, we're making investments to ensure these growth engines have the fuel to continue performing in the long term for example, we're progressing our alternative investment workflow and data platform for asset owners with new capabilities, coupled with our integration with <unk>.
And we will continue to advance our expansion of our increasingly popular indexes and trusted data products to new clients and new geographies.
Turning next to our market technology segment, we delivered $106 million in total net revenues for the fourth quarter, an 8% increase from the prior year period. This was driven by higher SaaS revenues and changes in foreign exchange rates, while revenues from market infrastructure operator projects stayed remained flat.
Over the course of 2020 I am pleased to report market technology, Welcome 29, new customers of which 25 shows our SaaS products.
As we stated in the previous Investor call.
Office implementations change request projects, new order intake levels from our traditional market operator clients and funding for new markets initiatives had been adversely impacted by pandemic related factors in the second half of 2020, we have taken actions in particular, dedicating more resources to mitigate project delays and to better deliver.
For our customers.
And our communication to our investors issued on January 12, we noticed we noted in one particular project specifically in on premise enterprise software delivery of a complex post trade clearing and settlement solutions Foreign exchange group changes to our implementation timing and expected costs resulted in a significant discrete $25 million.
For the period.
The expense resulted from taking a one time reserve to reflect the expected losses on the approximately 13 year fixed price contract.
The need for reserve resulted from an updated detailed review of the implementation project with the clients and with our internal technology and finance teams.
We expect an increased implementation spend from higher Resourcing for the project and a longer project duration due partly to the aforementioned COVID-19 related impacts, but also due to a prior under appreciation of this one projects unique demands.
While some of the issues are very specific to this one project, we will apply what we've learned to ensure future contracts fit with our profitability objectives other market technology business.
As we examine the broader market technology business with our market infrastructure operator clients. We are starting to see improved sales opportunities as we exit 2020. However, we have not seen a full recovery to a pre COVID-19 sales environment, both new and existing market infrastructure, operator clients recognize that we're operating in a unique period with unusual.
Elongated sales cycles, but we are engaged they are engaging with us with incrementally more energy in the last few months to move forward with new projects and system upgrades.
Additionally, our buy side and sell side technology business led by our SaaS based trade execution and trade surveillance offerings maintained strong momentum throughout 2020 with 13% revenue growth for the full year and we enter 2021 with a position of strength in this segment of our business.
During the fourth quarter, we also announced an agreement to acquire <unk>, which provides more than 2000 financial institutions in North America with a cloud based platform to detect investigate and report money laundering in financial fraud.
A statistic from the United Nations notes at up to $2 trillion and laundered money flows through the financial system every year as criminals continue to find sophisticated methods for moving funds undetected.
Robust advanced anti money laundering technology have become essential for financial institutions.
Once closed <unk> will complement NASDAQ has established Red Tech leadership, two to create a global SaaS leader focused on the $13 billion market for anti financial crime technology solutions. Our long term mission together with <unk> is to become the market leading provider of anti financial crime technology.
Despite the challenges we faced in market technology in 2020, we remain highly confident in our strategy and on our ability to execute against new opportunities going forward.
Moving to our foundational marketplace businesses, our market services segment delivered net revenues of $291 million during the fourth quarter of 2020, an increase of 29% from the prior year period. This.
This area of our business maintained its strong competitive position across both the United States and Europe, while our U S options business set a new quarterly trading volume record.
The record fourth quarter helped to make 2020, the most active year for options trading ever averaging $27 7 million contracts traded a day or 58% increase over 2019.
NASDAQ led the industry in multiply listed options for the 11th year in a row in fact for the first time NASDAQ was the largest options marketplace platform in the country for the year, including trading both index options and multiply listed options.
Meanwhile, our European Equities exchange complex set of new 10 year high on on exchange market share in 2020.
Finally, our corporate platform segment delivered revenue of $144 million in the fourth quarter, a 12% increase boosted by particularly strong IPO and private market activity in our listings business as well as increased demand for our IR intelligence ESG services and board portal offerings.
Our team successfully adapted all elements of the IPO process to a virtual environment and as a result for the eighth consecutive year NASDAQ led the United States exchanges for Ipos in 2020 with 316 capitalizing on an incredibly busy year for new issues and with a 67% overall IPO win rate including.
83% win rate for operating companies and a 53% win rate perspective.
Also for the second year in a row NASDAQ ranked number one in the U S. In terms of IPO capital raise with $89 billion, representing 52% of the industry total.
The fourth quarter was particularly strong in terms of activity. We welcomed 142 Ipos and this momentum has carried into 2021 with a particularly busy January.
Meanwhile, our Nordic Baltic and first north exchanges continue to attract new companies from across Europe, adding.
67, new listings, including 45 Ipos in 2020.
We also had 20 new companies switched their corporate listings to NASDAQ, including American electric power Astrazeneca and Keurig. Dr. Pepper. These 20 transfers represented an aggregate $282 billion in global global equity market capitalization.
Across the entire NASDAQ listing business in both the U S. In the Nordics, our corporate issuer count rose, 8% in 2020, setting us up in a strong position as we begin 2021.
On the private company side, our NASDAQ private market business set a new record for annual volume in 2020, facilitating 90 private company liquidity programs and with the fourth quarter.
In the fourth quarter was particularly busy with 49 transactions completed on our platform a new quarterly record.
Demand for our IR intelligence and governance solutions, particularly our ESG related technology and consultative tools drove growth in our IR ESG services sub segment, which saw an 8% increase in the fourth quarter.
And lastly, during the period, we filed a new U S listing proposal with the SEC that seeks to standardized board level diversity disclosures coupled with <unk>.
Recommended minimum diversity standard through a have or explain framework.
As I mentioned at the beginning of my remarks today 2020 represented an important year regarding the progress we've made on our strategic journey as we continue on that path I would like to reiterate the core ambitions, we outlined at our Investor day in November.
In market technology, our core ambition is to be the trusted market technology and anti financial crime technology partner and our key 2021 initiatives for this segment are to deploy and drive adoption of SaaS market technology solutions and to enhance our anti financial crime business through the combination with <unk>.
And investment intelligence, our core ambition is to be the essential partner for the investment community and our key 2021 initiatives are to offer a full service alternatives workflow platform per asset owners and to accelerate the expansion of indexes and cloud delivered data services to new clients and new geographies.
And corporate platforms, our core ambition is to be the leading provider of capital market solutions to corporate and our key 2021 initiatives are to expand NASDAQ share of U S corporate listings and to establish the leading end to end corporate ESG reporting workflow tool to complement our IR and governance solutions Lee.
Lastly in market services, our core ambition is to be the preeminent market operator for equities and equity derivatives in the us and Europe and our key 2021 initiatives are to continue to implement our multi year migration of our derivatives markets to our next generation platform increasingly leveraging the cloud and to expand our suite of distinctive equity and equity day.
Trading products and solutions.
We look forward to updating you on our progress on these ambitions in the quarters to come.
As I wrap up I will summarize by saying that our fourth quarter produced solid results for NASDAQ completing a successful 2020 for our company.
Moving forward into 2021, we remain relentlessly focused on advancing our strategic pivot to maximize opportunities as a technology and data analytics provider, while maintaining segment leadership in our foundational marketplace businesses in the U S and Europe.
We will officially celebrate NASDAQ 50, 50, <unk> anniversary next month as we near this important milestone in our corporate history I remain confident that we are moving the company in the right direction as we build upon the strong momentum generated last year.
With that I'll turn it over to Michael in a moment to review the financial details for his final earnings call before handing the mantle to and at the end of February.
While we spent some time on our last earnings call and our Investor day.
<unk> on Michael his incredible career here at NASDAQ and at <unk> on this occasion of Michael 73rd consecutive and final earnings call I would like to thank Michael for his tremendous service to NASDAQ, We will miss him greatly but we are well prepared for his transition as and Denison steps into the role of CFO and Jeremy School expansions.
His responsibilities to become our new Chief strategy Officer.
Now over to you Michael.
Thank you for those kind remarks, you Deanna and good morning, everyone. My commentary will primarily focus on our non-GAAP results and all comparisons will be to the prior year period, unless otherwise noted.
Reconciliations of us GAAP to non-GAAP results can be found in our press release as well as in our fall located in the financial section of our Investor Relations website at IR Diagnostek Dot com.
I will start by reviewing fourth quarter revenue performance as shown on page three of the presentation and organic revenue growth on pages, four and <unk> 14.
The $142 million increase in reported net revenue of $788 million is a net result of <unk>.
Organic growth of $126 million, including a 27% organic increase in mortgage services and a 16% organic increase in the solution segments, a $3 million positive impact from acquisitions, and a $13 million positive impact from favorable changes in foreign exchange rates.
I will now review quarterly highlights within each of the reporting segments.
I'll start with investment intelligence revenue, which increased $53 million or 27%.
Revenue growth during the period was 25%, primarily reflecting very strong growth in our index business and positive contributions from each of our market data and analytics businesses.
Annualized recurring revenue or <unk> was $516 million and increased 9% compared to the prior year period.
As a reminder, revenues related to index and futures trading are not included in the air our definition.
Fourth quarter 2020, operating margin of 65% increased four percentage points compared to the prior year period, while the full year 2020 margin of 64% Rose one percentage point versus 2019.
Now looking forward to the first quarter of 2021 for index.
Trading activity of instruments license to our indexes achieved certain thresholds earlier in the year.
Triggered an increase in licensing economics in the third and fourth quarters of 2020.
While the confidentiality confidentiality of our index agreements limits the detail. We can provide on this what we can say is that as we begin 2021, the economics of some of the agreements reset for the new year.
This will lead to approximately $7 million of lower revenue in the first quarter of 2021 compared to the fourth quarter of 2020. This assumes similar trading activity and product mix in the two periods.
Turning to market technology revenue increased $8 million or 8%.
Organic revenue growth totaled $4 million of 4% and there was a positive $4 million impact from changes in foreign exchange.
<unk> increase was driven primarily by higher SaaS revenues.
<unk> was $283 million and increased 9% compared to the prior year period.
The operating margin was a negative 1% in the period and was impacted by the previously mentioned $25 million reserve related to the expected loss on the market technology implementation project.
Excluding the reserves the operating margin was 23% in the fourth quarter of 2020 compared to 24% in the prior year period and 16% for the full year 2020 unchanged from 2019.
Corporate platforms revenues increased $15 million or 12%.
<unk> revenue growth totaled $13 million or 10% and there was a $2 million positive impact from changes in foreign exchange.
Organic revenue growth was primarily driven by an increase in U S listings revenues increases in ESG services revenues and growth in NASDAQ private market.
<unk> was $470 million, an increase of 9% compared to the prior year period.
During the fourth quarter of 2020, the operating margin of 31% for the segment was down from 35% in the prior year period. The decrease in the operating margin was primarily due to higher variable compensation and marketing expenses during the period in support of a very strong IPO activity.
For the full year 2020, corporate platforms operating margin was 36% unchanged from 2019.
Market services, net revenues increased $66 million or 29%.
<unk> revenue increase was $60 million or 27% and there was a $6 million impact from changes in foreign exchange.
The organic increase during the period, primarily reflects increases in cash equities and U S equities derivatives net revenues due to higher industry trading volumes.
For the fourth quarter of 2020 mortgage services operating margin of 61% increased six percentage points from 55% in the prior year period, and full year 2020 margin of 62% with five percentage points higher than 2019, each comparison, reflecting strong operating leverage on the higher trading revenues.
Earlier today, NASDAQ clearing received the Swedish financial supervisory authorities.
As a decision following their supervisor review initiated after the member default following the extreme market movements on our Nordic commodities market in September of 2018.
<unk> decided to issue a warning in an administrative fine of approximately $36 million.
NASDAQ clearing has been cooperating throughout the investigation with the regulator and maintains a constructive working relationship with your assets all day.
Immediately following the events and independent of the <unk> Day review.
Clearing launched a comprehensive enhancement program to strengthen the resilience and robustness of the clearinghouse. We are comfortable that the program effectively addresses the observations made by the FSA FSA in their review.
While the SFA recognize the changes made by the clearinghouse. Our initial review indicates that the findings appear to be disproportionate to the severity and impact of the incident and two the size of the commodities business that the clearinghouse service.
We're continuing to review the decision and evaluating our legal options and we'll communicate any next steps toward members and the broader public in due course.
Now turning to pages nine and 14 to review expenses non.
Non-GAAP operating expenses increased $71 million to 406 million the increase reflects a $53 million or 16% organic increase inclusive of the $25 million reserve related to market technology.
Excluding the reserves you organic increase was $28 million or 8% as compared to the total total organic revenue growth of 20%.
The increase was also due to a $6 million increased from the impact of acquisitions and a $12 million increase from the impact of changes in foreign exchange rates.
As noted in our January <unk> press release, the full year 2020, non-GAAP operating expenses of $1 four 1 billion.
We were above the high end of our prior guidance range due to three primary factors.
Higher performance compensation in variable expenses related to higher than expected fourth quarter 2020 revenues associated with elevated trading volumes a quarterly record in assets under management in relation to <unk>.
And a multi decade high in the number of NASDAQ Ipos.
The impact of changes in foreign exchange rates.
Third the $25 million reserve related to the expected loss of the multi technology implementation projects.
Our net loss item I will spend a moment, explaining the accounting aspect of the reserve.
Counting for highly customized software system delivery contracts, such as certain of our market technology contract requires us to record a loss in the quarter when it becomes probable that costs will exceed future revenues from the contract.
During the fourth quarter as part of our regular review of significant implementation projects, we refined and revised our plans relating to a large scale post trade clearing implementation project for specific clients.
In that process. It became probable that we would incur a loss over the remainder of that particular project in part due to the logistical implications of COVID-19 as.
As a result, we recorded a $25 million reserves that reflects the expected loss.
Turning to slide 10, we are initiating our 2021 non-GAAP operating expense guidance range of $1 505 to $1 six 2 billion.
The expense guidance range at the midpoint reflects an approximate 3% organic increase compared to 2020, excluding the $25 million reserve other market tech contract and.
An additional approximate 3% increase due to changes in foreign exchange rates as.
As well as expenses due to the net impact of M&A.
The guidance does reflect the anticipated closing of <unk> acquisition in the first quarter of 2021.
Now moving to operating profit and margins non-GAAP operating income increased $71 million in the fourth quarter of 2020, and the non-GAAP operating margin of 48% was unchanged year over year excluding.
Excluding the impact of the $25 million reserve the non-GAAP operating margin would have been 52% in the fourth quarter up 400 basis points versus the prior year.
Net interest expense was $24 million in the fourth quarter of 2020, a decrease of $2 million versus the prior year period.
The non-GAAP effective tax rate was 25% for the fourth quarter of 2020 and 26% for the full year 2020.
For the full year of 2021, we expect the non-GAAP tax rate to be between 25 and 27%.
Non-GAAP net income attributable to NASDAQ in the fourth quarter of 2020 was $268 million or $1 60 per diluted share compared to $215 million per $1 29 per diluted share in the prior year period.
Turning to slide 11 day.
Increased by $1 $97 billion versus September 32020, primarily due to volume issuances of $1 8 billion in December and an $89 million increase in our outstanding Eurobond book values caused by a stronger euro.
The proceeds from the December offering are expected to be used to partially finance the different acquisition, along with additional borrowings of approximately $500 million prior to the closing of the transaction.
Our total debt to EBITDA ratio ended the period of $3 five times, an increase from two four times from the third quarter of 2020.
During the fourth quarter of 2020, the company paid common stock dividends in the aggregate of $81 million and repurchased common stock in the amount of $36 million.
During 2020, the company also repurchased common stock in the amount of $222 million.
Now I'd like to provide a brief update on the acquisition of Verifone.
We continue to progress through the regulatory approval process and expect to close in the first quarter of 2021.
As a reminder, we are projecting in excess of $140 million in various in revenue for the full year of 2021.
This will need to be adjusted for both the actual closing date as well as the impact of an accounting write down of deferred revenue.
We currently estimate this purchase price adjustment on deferred revenue to total $35 million.
Which will impact recognize revenues over the 12 months period following the close.
The acquisition of Airfreight is expected to deliver non-GAAP EPS accretion beginning in 2022 and increase thereafter.
I'll remind investors and analysts that NASDAQ organic growth calculation reflects contributions from acquired businesses beginning 12 months after close and as such <unk> will be included in organic growth beginning in the first quarter of 2022.
Finally, as Adena mentioned something about <unk> 70, <unk> consecutive in last quarterly call before retirement.
I want to take a moment to thank my incredible team and outstanding colleagues for all their extensive efforts contributions and kindness. During my time here at NASDAQ I also want to thank kadena for her exceptional and principled leadership. There has been an honor and an education working for Dana and our esteemed board of directors.
I also want to express my appreciation and gratitude to you the investors and analysts with whom I've had the pleasure and privilege of working with over the years.
And I, especially want to thank my family for allowing me the time to pursue my career and I'm very much looking forward to being able to repay that some of that time, whether they wanted or not over the coming years.
As I said on the last call I could not be more excited that and we'll be taking hold of the CFO range.
So enjoyed working with her she is a person of integrity intelligence and initiatives, while I'm confident will serve this organization with excellence and I look forward to you're breaking my quarterly record a CFO of an exchange group and I will definitely hologram into the Q2 2039 investor call when that occurs.
I'll turn it back to the operator for Q&A.
Yeah.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press. The pound key please limit yourself to one question. Only then re queue for any follow ups. Our first question comes from Rich Repetto with Piper Sandler Your line is open.
Yes, good morning, first I want to congratulate both Michael and Jeremy as I move on to.
The next phase of their career, but.
Both have deep roots in the exchange space. So.
I congratulate both guys.
So my question is mainly from Michael I didn't fully understand I guess the <unk>.
Drop in revenues I think it was kind of investment intelligence, but the overriding question here is really you had Dana it's when you look at the organic growth rate I know you adjusted it up for.
<unk> a.
A bit but if you take for example, an investment intelligence the 5% to 8%.
We've run at 18 and 25% the last two quarters is it still a these range is still reasonable for the run rate you're experiencing especially in investment intelligence.
Sure why don't I I'll actually start with having Michael just make sure he'd clarifies that the index revenue.
Discussion that he had the fourth quarter versus the first quarter. If you want to provide any clarification, Michael and then I'll answer the broader question rich.
Yes Roger.
I can't get into too much detail, but basically the way. The contract works is that there are certain elevation points in the contract and so what we.
What we wanted to basically trying to say is that some of those reset at the beginning of each year.
And so depending on activity.
And on a comparable basis than Q1.
Of 2021, if it has it has the same mixed in the same trading activity.
Compared to Q4, there will be a $7 million decrease in the run rate for that.
In the map for that period in Q1.
Does that answer that question.
Yes, yes, okay, great Yeah, and then in terms of the broader question rich. We obviously are extremely proud of the growth that we've been experiencing in our investment intelligence.
Segment, and where we're so pleased by the level of Investor interest in our indexes and we do think that our index franchise generally does lean into the future Lee economies. So we're very pleased with that I think we also are seeing solid growth across market data and the analytics businesses and that are more stable, but also just really.
Strong, so so whether or not youre, asking whether we would change our medium to long term outlook for the business I think that we are maintaining our medium to long term outlook for the business on the back of the fact that.
Index values can fluctuate, but I also agree that as we continue to perform and we continue to see progress in the business. We will of course continue to update our our outlook for that business.
Okay. Thank you very much sure.
Thank you. Our next question comes from Dan Fannon with Jefferies. Your line is open.
Thanks, Good morning, Michael.
My question is around the market Tech segments. So if you could.
Discuss the order intake the decline quarter over quarter and year over year, I know, you've mentioned kind of COVID-19 and some delays in implementations that may be discussed that and then in the context of the charge and then what that means as we think about the margin for that business going forward as you try to restructure that contract.
The progress and the growth in margin that you've talked about over a multiyear time period does that accelerate this so as you kind of reset the bar for some of the more unprofitable contracts okay.
Okay, great. Thanks, So on order intake I would say that the primary draw.
Driver of our lower order intake for 2020 has been the impact of the Covid situation. When we think about our engagement with our clients.
And particularly for those that are taking on some very significant projects with us I think there are two things that come into play first is the fact that many of our market infrastructure, operator clients or had been really really focused on managing to capacity and resiliency in this year, where they are all experienced very high volume and we're very proud of the fact that our.
Technology has.
Serve them well, but they've been more focused on the here and now and some of the projects that they had been planning to do and planning to work with us on early in the year Howard we're temporarily put on hold so we're starting to engage more productively with them as they start to think through the future I'm going into 'twenty and 'twenty, one, but I definitely think that was part of it and then the second thing.
Is that one we are engaging with new clients and we did sign as we mentioned we did signed 29 new clients in 2020, but it is it is important in some cases, particularly with the larger ones that would drive the order intake number.
They have a lot of engagement, including in person engagement and thats been much harder. This year. So some of those projects again has just had elongated sales cycles. So I think that it really has been a COVID-19 impact on order intake primarily in terms of the margin going forward I think the way to look at that particular situation wasn't it was an isolated situation.
We have had actually we've signed over the last five years 38, new clients that would be in a similar situation where they have very.
They have large scale contracts, we do quarterly reviews, we have a steering board internally to track and monitor the projects and this is the only one in which we are seeing a situation where we have a loss.
But in that particular case, we are recognizing that loss now, which then for the remaining life of the contract means we will not recognize the loss assuming it goes according to our expectations I think though that.
But it doesn't say accelerate the margin it just it makes it so that this one one isolated situation doesn't have a negative impact on the margin going forward.
I hope that answers your question Dan.
Okay, great. Thank you.
Thank you. Our next question comes from Brian Bedell with Deutsche Bank. Your line is open.
Hi, great. Thanks, good morning.
Just a quick two part of the listing services, obviously very strong.
Just wanted to get a better handle on the Brian you there can be episodic movements in that line on a quarterly basis in terms of how the Rev.
<unk> calculated given the very strong.
Environment that we've seen.
Just.
Sort of an outlook as we come into 'twenty one on the on the revenue side of that and then I missed part of the barrel.
Revenue expectation, if you could just clarify Michael.
I got to $35 million of deferred revenue, which.
If you could just clarify if that will be included in your adjusted results in a contra revenue for 'twenty one per barrel and then reiterate.
The top line that you mentioned for <unk> and 'twenty one.
And congratulations.
By the way as well.
Yeah, great. Thanks, Brian I'll answer the listings question and then I'll turn it over to Michael for the <unk> question.
On the listing side I think that if you think about the key drivers of recurring revenue in that business and much of the much of the revenue is recurring and that business. Having mentioned the fact that we had a net increase of 8% in terms of total listings on that business year over year, which then.
Thats the exit rate that becomes the entry rate for 2021, so and as you know we collect fees annually and we collect them in beginning of the year. So I think that that that's one thing to think about in terms of the fundamental drivers of the business I think the second thing is that as we look at our SaaS businesses, our IR services, particularly our technology and.
<unk> portal business as well as the one report system those are all.
Kind of what I'll call reoccurring contracts many of them are multi years some of them. Many of them of course recur year over year and so if you have a higher exit rate for last year 2020, and therefore, you have a higher entry rate for 2021, net obviously accrues to our benefit but you are right that there are some revenues on what we call our advisor.
<unk> service, including our ESG Advisory services that are project based and so that revenue is more that we might have a one time project, we might have recurring projects, but that that part of the revenues a little less recurring so hopefully it gives you a sense of how to think about the fundamental drivers of that business as we go into 2021.
Why don't we turn it over to Michael on the <unk> question, Yes. Thanks, Adena. So on verified fan we said consistent what we said when we announced the transaction that the 2021 revenue, we would anticipate to be in excess of $140 million.
Just a couple of adjustments in the first adjustment is that obviously, we will have to adjust that for the timing of the closing, which we do anticipate to be in Q1. So the 140 is a full year number and so we just have the per rate that accordingly.
The amount and once we close the transaction secondly, we currently estimate that the purchase price adjustment on the deferred revenue, which will be reflected in our results will come off of that $140 million or the per weighted heavier to $40 million in the first year as well and so we estimate that there will be a $35 million reduction to that.
Adjusted number in the first year of <unk>.
<unk>.
And that eliminates for 2022 right. So we go back to the 140, plus the 30% growth rate or whatever we have for verifone in 'twenty two.
Technically it's technically over the first 12 months or so and again, we're finalizing the adjustments will be able to provide more updates on that.
In the next quarter results. So we will be able to fine tune that number a little better but it's over the first 12 months So inc.
It could flow into 2022, but only really till the.
Through Q1, since we expect the <unk>.
Transaction to close in the first quarter.
Great great. Thanks, very much and congrats again Michael.
Thank you very much really appreciate with.
Okay.
Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.
Hey, good morning, everyone. I think just a few clean up questions here on I guess investment intelligence.
On the index business can you just give us the breakdown between trading and AUM and then.
On market data specifically.
Audit fees and why the sequential decline in that line.
That's it for me thanks.
Sure. So I think on the index side, what we what we generally look at Alex is how much of that revenue is coming from AUM driven versus the other and other is both.
Futures trading as well as the.
Data that come the index data so.
When we've kind of value at that business, we would say about two thirds of the revenue comes from AUM and about a third of the revenue comes from the futures and the data the.
The other thing we said in the past is that the futures revenue can be a range of 10% to 20%.
The overall and I think that if you look at the fourth quarter. It was those numbers are generally accurate.
Obviously every quarter the futures revenue will fluctuate a little bit, but but those types of ranges are the right way to look at it including the fourth quarter in terms of the market data side.
I think that.
What we call revenue from previously unreported usage.
It was up $2 million year over year in the fourth quarter, but was actually was lower for the year versus 2019.
So the fact that.
To show a nice performance in market data, even with the lower revenues from that particular activity I think is a testament to the strength of the business.
Yes, just the actual number was <unk> 7 million for the quarter, Alex in the market data and get it really coming from sales of the product to new clients. That's one of the big drivers of the market data business.
Okay and by the way, so youre not going to be more specific on the index breakdown last couple of quarters, you gave us some pretty exact numbers youre going to stop doing that yes.
I think we said that last quarter that.
We wouldn't necessarily provide that on a regular basis going forward and so the.
The two thirds number is the number to keep in mind.
Fair enough. Thanks, guys. Thank you.
Thank you. Our next question comes from Chris Allen with Compass point Your line is open.
Good morning, everyone I, just wanted to touch on the sequential strength in market technology.
Seasonal impact.
From change requests.
A little bit surprised just given kind of the current environment.
Just from an activity perspective.
Your client activity perspective.
And just some of the challenges of Covid kind of one off thing so any color there would be helpful.
I think that in terms of I mean, as you know the change request revenues and kind of the change requests and other revenues there do reflect some short term work that we do for our clients as well as.
Other adjustments, we make to agreements that can accrue to our benefit in particular quarter. So I think that those types of revenues just.
They do fluctuate the fourth quarter tends to be higher a higher quarter for us as people as people plan for it to do things before the end of the year and as we frankly work with clients to try to get commitments out of them before the end of the year. So that tends to be a higher number for any any particular in the fourth quarter tends to be the highest quarter I'm not sure.
Theres any more color to give on that Michael.
If you look historically that is very consistent but the fourth quarter from a seasonality standpoint is the highest in.
It really is driven by change of course, even if things are later this year relative to others in the full year concept on a full year basis relative to Q3 Q4 is always volume.
The highest quarter.
Thank you sure.
Thank you. Our next question comes from Ari Ghosh with Credit Suisse. Your line is open.
As you know Michael I just share some.
Quick one on market.
I think he noticed that Joe.
And the segments.
We see some impact as a result of the patent.
John maybe talk about that.
Is it regional client site, that's getting more impacted.
As a result of this inc.
And then with regard to Saracen.
Yes.
In this yet but is there any sense or any color that you can provide therapies facing similar pressures or if there's anything unique about that business, where maybe it's not as impacted.
Thinking about that run rate of 40% so.
Jim There should we expect that to continue.
Sure Yes.
So I think that if we look at the overall market Tech business.
Got the market infrastructure operators, and then we have our banks and brokers clients and so I think it's important as I mentioned in my comments that it's really in the market infrastructure operators segment that we saw slowing.
Slowing of sales as well as the elongation on some.
Significant projects and I think that as we think about our engagement with those clients as I mentioned also a lot of those clients really focus much of the year on their immediate needs to make sure that they were managing to capacity and resiliency in managing too.
Current trading levels and so if they were planning to do some some enhancements or changes or upgrades.
<unk>.
Kind of put those plans on hold I think also they know that as they go forward with those plans they want to be able to have the right focus from their customers and their customers are also dealing with these elevated trading volume so to put on them and upgrade in the middle of that I think was also something they were hesitant to do so as we exited 2020.
And we're starting to we are starting to see more engagement from those clients thing.
Can't put these things off forever.
And they are starting to engage with us, but I would have to say it still is not at the levels that we were experiencing before COVID-19.
Beginning of last year I think also some of the new markets clients that we're we're very active and engaged with us are continuing to engage but some of them have hit funding issues are just as are looking at launching their products are waiting until more normalized environment. So those are the things that are that's the color behind that on the banks and broker side, though and this is <unk>.
Actually plays into the <unk> question.
Actually continue to see nice healthy engagement healthy growth and also it's a SaaS based delivery. So it's a much easier thing for their clients to take in and to integrate whether it's our surveillance or our trade execution solutions and so that business had a more I would say more of a normal environment as well.
<unk> seen some increased demand, particularly for surveillance as the clients went online went to remote setting and they had to add users to make sure that they had proper coverage.
That that then plays into the Verifone question, which is there more aligned with the banks and brokers, where it's a SaaS based cloud based delivery. So it's the light implementation for the client.
And they continue to have a lot of engagement with banks and brokers managing through their anti financial crime program. So they didn't see the same level of impact as we did we did see at the market infrastructure, operator clients and I think that they had a solid end to the year. So we feel good about their progress and their momentum going into 2021.
Thanks, so much can perhaps Michael.
Sorry.
Thank you and as a reminder, please limit yourself to one question only then re queue for any follow ups. Our next question comes from Mike Carrier with Bank of America. Your line is open.
Hi, good morning, and thanks for taking the question.
On the expense guidance for 'twenty one.
Clarification, given such a strong year in 2000, I think Michael you mentioned, 3% from FX just wanted to give to you.
Assumption around that and then if we do get into a backdrop, where we see some slowdown in index and lifting just given the strong growth that you guys have seen.
Much flexibility is there in the expense base related to maybe those businesses.
Yes, so the.
3% of FX, it's really a combination of both the most of the weakening of the dollar relative to the second of the Euro.
And we.
The guidance that we provided we're really looking at current.
Current spot rates as how we develop those estimates.
And that's where we come up with.
Delta there, but it has been fairly significant relative to the average for last year.
And then.
Theres always ability to make some level of adjustments I think it's important that we want to continue to invest in the business and continue to grow it for the future, which is where a lot of our investments are to build out new products and capabilities, but obviously if there as you saw the fourth quarter, where we had some increases in marketing spend.
Some other comp related items that in periods, where things were to slow down then there are certain factors that will adjust accordingly, but I don't want to take away from the required investment going forward.
Okay. Thanks, a lot.
Thank you. Our next question comes from Ken Hill with Loop capital. Your line is open.
Hey, good morning, I wanted to come back to the corporate platforms growth that was so strong in the quarter and I called out a number of items, there, but kind of thinking about particularly like the listings business going forward with ipos getting so much attention also from a spec activity perspective, that's really picked up can you comment on what youre seeing there in your pipeline.
And then maybe some of the impacts on specs and how that might kind of have impacts for your not only your trading in your listings business, but also maybe NASDAQ private markets. How do you think about that thanks.
Sure.
So I think that.
It's worth noting that of the 316 Ipos that we had last year I believe of 184 of our operating companies and we had we are actually very proud of the fact, we had an 82 or 83% win rate.
For those listings.
As well and then the remainder was back then as we go into 2021, we are continuing to see a very healthy.
Activity level in terms of listings of both operating companies and stocks, particularly facts, but I think that when we look at our pipeline. We have a longer view of operating company potentials versus back stocks tend to come to market quickly tend to engage with us quickly and we don't have as much line of sight.
We probably really only have some level of understanding of the.
The demand for specs in in the first quarter and then our line of sight really diminishes I think with with our operating companies who tend to have a little bit of a longer view. So so on my answer to the question is that we haven't very active pipeline in both <unk> and <unk> and operating companies and I would say back for the next several weeks.
Probably and in terms of we don't see beyond that and with operating companies. We certainly see a healthy pipeline through the first half of the year and then we'll have to see how the markets continue to develop but as you know.
The market and the performance of the market does have an impact on.
When companies tend to go out so assuming a benign market environment, we should have a pretty healthy healthy first half.
Got it thanks, and just I guess anything to think about from an asset private market perspective.
So many companies coming public with well I mean for as many companies are going public there are still thousands of private companies and as we said even with them really active IPO environment last year, we had 90 private market programs and it was a record for us. So so I think that we should assume that there's just a lot of companies out there.
John.
Some of them are ready for the public markets and some are preferring to stay private and the great thing is that NASDAQ has the ability to serve both of them.
Got it thanks very much.
Okay.
Thank you. Our next question comes from Chris Harris with Wells Fargo. Your line is open.
Great. Thank you.
So you mentioned <unk>.
Pivot markets.
Being a contributor to the.
Increase in corporate platforms revenue can you remind us what the revenues are in private markets today, and then should we assume that most of those revenues are variable or is there.
Our recurring component to that too.
So first of all we don't disclose specific revenue related to the NASDAQ private market. It is part of the listing listings sub segments that we don't separately disclose that so we can't make that available to you, but but I would say that the nature of the revenue is primarily variable you are correct. It's basically we get paid for the programs that we execute on behalf of our <unk>.
Clients the tender programs.
So it is not as recurring in nature as the listings businesses.
But the quantum of that as.
It is a small percentage of our listings business overall just to say.
Got you. Thank you.
Uh huh.
Our next question comes from Alex Blaustein with Goldman Sachs. Your line is open.
Great Hey, good morning, everybody.
Quick question about Barrington.
I guess, one clarification around how much <unk> expenses do you guys have embedded in your 2021 Opex guidance, obviously, taking account that its a partial year, but also the bigger picture as you guys are getting a little closer to closing the transaction can you provide some color on sort of customer feedback you're hearing I know part of the rationale was some some pretty compelled.
And cross selling opportunities.
And what kind of growth do you guys expect.
<unk> revenue once the deal closes for I guess, both revenues and expenses.
Sure. So it might be when you take the first part yes sure. So we're operating a very explicitly.
Explicitly but what I can do is reiterate the comments, we made when we announced the acquisition, which was that <unk> was operating at around 26% EBITDA margin.
Joe you can take that into account to estimate the amount that you would put towards towards Bourbon and then obviously you have to adjust it for the year.
So then.
The remainder.
Sure, Yes, so as we engage with our clients actually their clients and our clients has been very positive. So I think that if we think about the tier one and tier two banks that we serve with our anti financial crime technology, particularly our surveillance technology. We've had a lot of good calls from clients, saying want to learn more is this a product that could apply to us.
How are you going to integrate that in with your capital markets offering.
So those are great questions to be getting from our customers before we even closed the deal and I think as we mentioned when we announced the deal. There is a journey to take with <unk> to continue to advance the product to get them ready to serve the largest banks in the world, but that is obviously, our mission and our joint vision for the business and so that'll be an area.
Our significant area of investment in our primary area of investment is to continue to advance the platform to be able to serve the largest banks over time.
And that's a big part of why we bought it. So it's great to know that our clients are very interested in engaging with us when we're ready I think the second thing on their clients is I think they they do appreciate us as in a high integrity player. We have obviously a strong presence in the market. We have a strong balance sheet, we have the ability to really.
Managing the business together and I think that I think that they are very pleased with us as the partner to America and going forward.
Great. Thanks.
Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.
Good morning, and thank you for taking my question.
Could you. Please talk about the traction of cybernetics on the buy side surveillance and the latest development of the market abuse regulation Enduro is.
Is it still on track compared to you always shouldn't expectation any more color would be very helpful. Thank you sure, yes, with the market abuse or what we call <unk> that has definitely been.
It has been over the last few years actually a good catalyst for our sales of our surveillance.
Solutions to the brokerage community and also as the buy side has been managing through that changed. It also definitely opens doors to conversations and sales for the cybernetics are what we're now calling our buy side surveillance solution.
We're making good traction with the buy side surround solution in terms of sales and it's been I would say that we've had a relatively good momentum year, there, but it's still a very small part of our business now and it was a it was a small acquisition and it continues to be an area, where we are we're making sure. We're tailoring it to the needs of the buy side I would say that day.
The original product is a great product, but wasn't quite tailored to what the buy side specific needs where said we've spent the last couple of years really engaging with customers and making sure that we have a solution that really meets their needs and now we've had more sales momentum, but it continues to be small, but we're optimistic there.
Thank you.
Thank you and that's all the time, we have for questions today, I would like to turn the call back to Adena Friedman for any closing remarks.
Great. Thank you well in closing Nasdaq's fourth quarter and full year 2020 performance was solid and we are starting 2021 with strong momentum.
Our leadership team remains focused on executing our technology led strategy to deliver for our stakeholders and I look forward to our continued discussions throughout the year on the progress that we will be making against the strategic priorities. So thank you very much for your time today.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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