Q1 2021 Nasdaq Inc Earnings Call
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Okay.
Good day, and thank you for standing by and welcome to the NASDAQ first quarter 2021 results. At this time all participants are in a listen only mode. After the speaker's presentation there'll 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.
I would now like to hand, the conference over to your Speaker day, Ed Detmer head of Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining us today to discuss Nasdaq's first quarter 2021 financial results on the line are Adena Friedman, our CEO and data center, our CFO, John Zecca, our chief legal and regulatory officer 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 update I'd like 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.
Dana thank.
Thank you Ed good morning, everyone and thank you for joining US my remarks today will focus on Nasdaq's first quarter 2021 financial and business performance as well as the progress we have made executing on our strategy.
I would like to begin by acknowledging how deeply proud I am of the NASDAQ teams continued commitment to our clients during this period.
Full year has now passed since our global workforce began working remotely and I could not be more pleased with our first quarter results that our team has delivered to our stakeholders today.
Our relentless client focus and nasdaq's nimbleness allowed us to generate strong financial results for the first quarter of 2021.
Also made important progress against our corporate strategy during the quarter with the completion of our acquisition of <unk> in February and the announced agreement to sell our U S fixed income business to trade web markets.
Our performance during this period continues to underscore the resilience of NASDAQ diversified product office, offering and business model as well as our ability to address the needs of our clients in a rapidly changing environment.
Now I will turn to our strong financial results for the first quarter of 2021.
NASDAQ delivered net revenues of $851 million, an increase of $150 million or 21% from the prior year period, driven by 17% organic growth in our solutions segment businesses and 17% organic growth in our market services business.
The acquisition of <unk> and the changes in FX rates drove the remainder of the growth for the business in the quarter.
Across our exchange businesses, the incredibly dynamic capital markets environment. During the period combined with our strong competitive positioning resulted in record U S equity and options volumes and a record quarter for new listings.
I'm also extremely proud of the progress we've made to continue to grow our annualized recurring revenue or <unk>.
<unk>, which is up 21% compared to the prior year period.
This is driven by our continued focus on key secular growth opportunities that are powering our solutions segments. We are seeing rising demand across across our clientele for our solutions, including from institutional investors for analytics and workflow tools from corporate clients for our ESG and IR solutions.
And from financial institutions, and marketplaces for technology that helps reduce financial crime.
Our <unk> growth was also boosted by the acquisition of Erickson.
The strong operating leverage of our model was evident in our results our non-GAAP operating margins increased to 54% up two percentage points compared to the prior year as a result, we experienced 25% increase in our non-GAAP operating income and a 31% increase in our non-GAAP diluted earnings per share in the period.
Turning now to the specific highlights from the quarter I will begin with our foundational marketplace and corporate businesses.
Our market services segment saw net revenues of $338 million, a 20% increase from the prior year period, and a new quarterly revenue record for this business. This is primarily led by higher U S options and cash equities trading volumes were also seeing an increase in demand for trade management services connectivity solutions as clients adjust.
There are capacity for a wider range of volume scenarios.
Nasdaq's U S options market set a quarterly record of 892 million contracts traded during the period, an increase of 57%, while our U S equities market set a quarterly record of 153 million shares traded an increase of 20% year over year.
Additionally, during the period, we entered into a definitive agreement to sell our U S fixed income business and Phi to an affiliate of trade web markets.
Decision to sell <unk> aligns with our strategy to maximize our potential as a major technology and analytics provider to the global capital markets. We expect the transaction to close later in 2021 subject to customary closing conditions.
Next our corporate platform segment delivered revenues of $155 million, a 21% increase with robust contributions across each of the product areas in that business. The.
The business has boosted by record levels of new listing activity material contribution from NASDAQ private market. Following a record first quarter for private company transactions and increased demand for our Investor Relations intelligence and ESG solutions.
In our IR and ESG services business, we are seeing consistent and growing demand for our expanded suite of products, which has been carefully designed to help our clients measure analyze collaborate and take positive action regarding their respective investor relations governance and sustainability programs.
For example, in our IR Intelligence unit, we saw six new client wins from our new expanded ESG advisory offering a more in depth solution that has lengthened and deepened our engagement with executive leadership teams as they seek to meet the demand from institutional investors and other stakeholders.
Greater clarity on their ESG strategies.
And we are seeing this deeper client engagement results and continued sales momentum for our consultative IR advisory services, and our NASDAQ IR insight workflow solution, which saw a combined 36% increase in sales during the quarter.
And our listings segment NASDAQ led U S exchanges for Ipos during the period welcoming 275, ipos that raised $74 4 billion.
Including 79 operating company Ipos and 196 back Ipos.
The NASDAQ stock market led U S exchanges with a 69% total win rate on ipos, including a 77% win rate among operating companies and a 66% win rate amongst back.
Listing highlights from the first quarter include the Ipos of Bumble Qual tricks affirm <unk> and petco during the quarter NASDAQ listed seven of the top 10 largest ipos by capital raised comp.
Companies have responded positively to our virtual IPO experienced during the pandemic period, and we're excited and encouraged to see our iconic bell ceremony in IPO day experience come to life again in times square and in cities across the country through our unique rebel remote Bell ceremony highlights include going on the road during the quarter to Bumble in Texas.
And to Quad tricks in Utah, we look forward to welcoming our clients and capital markets partners safely to the NASDAQ market site for these milestone celebrations as we start to prepare for a post pandemic period.
Of course, I also want to acknowledge the strong start to the second quarter and listings with in particular, noting NASDAQ successful direct listing a coinbase a global leader in infrastructure and technology for the crypto economy. The coinbase listing represents the largest direct listing in history and was the largest ever initial public listing opening cross on NASDAQ.
Now, let me turn to our market technology and investment intelligence businesses.
Our market technology segment delivered $100 million in revenues, including a partial period contribution from the <unk> acquisition, which we completed in February.
Our annualized recurring revenue for the quarter was a $416 million or 62% increase year over year, including a 10% increase from our existing business and an additional $134 million representing the annualized total of <unk> first quarter subscription revenues irrespective of the closing date or the temporary impact of.
The write down of deferred revenues.
To give you more transparency in how different parts of market technology are operating and progressing going forward. We have started to report our revenues from this segment of our business in two groups. The first is called marketplace infrastructure technology, which will comprise our solutions for the full trade lifecycle to market infrastructure operators banks and brokers.
And non financial market operators.
And the second is called anti financial crime technology, our offerings, providing surveillance risk management, and <unk> anti money laundering and fraud detection solutions.
As we stated in previous Investor calls there are certain areas of our market technology business that have been adversely impacted by the pandemic related factors largely in the marketplace infrastructure technology business.
And while the environment continues to be characterized by the logistical challenges to implementations and lengthened sales cycles. The actions. We took last year to respond to those dynamics are resulting in stabilized, but moderated revenue growth in the near term, albeit with short term impact to segment profitability.
More importantly, our longer term vision for market technology remains on track as demonstrated by the progress we've been delivering in new sales and revenues from SaaS products and services in particular, our anti financial crime technology solutions, excluding the impact of <unk> SaaS revenues within all of market technology increased 15% year over year.
<unk>.
Turning to our investment intelligence segment, we delivered net revenues of $258 million up $47 million or 22% from the prior year period.
Overall assets under management, and Etp's benchmark to NASDAQ indexes totaled $385 billion at the end of the quarter, an increase of 87% from the prior year period, and a new quarterly record. Additionally, trading of futures and options on futures contracts tracking NASDAQ indexes increased 31%.
Year over year.
I'm also pleased to see increasing adoption of some of our recent product innovations in particular AUM in the Invesco <unk> innovation suite built on their strong debut in the fourth quarter of 2020, and now stands at approximately $2 billion in AUM.
In just five months after launch making this one of the most successful new launches for NASDAQ Index business.
Our analytics business delivered revenues of $48 million, an increase of $7 million or 17% from the prior year period.
Led by investment in <unk>. This business experienced strong increased growth in the first quarter due to improvement in both new users and retention compared to the prior year period.
On a sequential basis, new sales were up 23% from the fourth quarter of 2020, reflecting both a rebound in investing and institutional investment industry demand. Following some temporary contraction in 2020 as well as increased realizations of the synergies between investment in <unk> as the combination helped drive 28 new occur.
<unk> in the first quarter.
These results underscore our strategy to create comprehensive workflow solutions for investment managers and institutional asset owners from pre commitment diligence to post commitment portfolio tracking and secondary trades.
Lastly within <unk>.
Investment intelligence, our market data revenues rose, 11%, driven primarily by expanding international demand for our proprietary data products.
As I wrap up I would like to reiterate that NASDAQ remained diligently focused on serving the unique needs of our clients, while we advance our strategic mission to capitalize on the opportunities that lie ahead of us.
At our Investor Day in November we articulated that our diversified business model was designed to provide us with the resiliency to drive disciplined growth across a variety of backdrops are.
Our recent success, especially in the first quarter underscores the power of the NASDAQ platform and highlights that the strategy underpinning a repositioned franchise is resonating with our clients as we continue to reallocate capital to higher growth opportunities, while maintaining leadership in our marketplace core.
This focus has also resulted in many new instances of dynamic collaboration across our businesses be it new product innovations are bringing advanced technology solutions to help our clients solve major industry challenges.
For example, in our anti financial crime Technology segment, we're very excited about the work that we can do together with <unk>. This includes the potential for new client opportunities given our strong relationships with tier one and tier two banks as the <unk> team continues to build out their solutions to increase confidence in the global financial system.
Additionally, we're pleased to support their international expansion, especially into Europe, where Verifone has just landed its first client.
Another Great example is the intersection of our listings and index businesses listing the next generation of innovators, including many of the largest ipos that have come to NASDAQ in the recent years creates strong synergies to drive new product development and collaboration with our index business. For example, the strength and success of our flagship NASDAQ100 index.
And our partnership with Invesco laid the groundwork for our recent launch of the Invesco innovation suite, including the Invesco NASDAQ next generation 100 ETF.
Comprised of the 101st to the 200 largest non financial companies listed on NASDAQ. The NASDAQ Nextgen 100 index has been one of the fastest growing etfs that we've ever launched with the partner and includes companies such as Etsy, and Roku as well as many of the fastest growing enterprise technology and health care companies listed on our Mark.
<unk>.
As I look back at this quarter I could not be prouder of the performance across the business. We officially celebrated NASDAQ 50th anniversary in February and given our rich history as a technology pioneer I remain confident that we are moving NASDAQ in the right direction for many years to come and with that I will turn it over to Anne to review our financial results in greater detail.
Thank you Regina 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 U S. GAAP to non-GAAP results can be found in our press release as well as in a file located in the financials section of our Investor Relations website at IR Dot Nasdaq.
Dot com.
I will start by reviewing first quarter revenue performance as shown on page three of the presentation and organic revenue growth on pages, four and 14, the $150 million increase in reported net revenue of $851 million is the net result of organic growth of $118 million, including 17% organic.
Increase in both market services and solutions segment of.
A $14 million positive impact from acquisitions, and an $18 million impact from changes in FX rates.
I will now review quarterly highlights within each of our reporting segments I'll start with investment intelligence revenue, which increased $47 million or 22% organic.
Revenue growth during the period was 20%, reflecting very strong growth in our index business as well as strong contributions from both our market data and analytics businesses.
Annualized recurring revenue or <unk> was $542 million and increased 13% compared to the prior year period.
AUM and Etp's licensed to NASDAQ entities rose, 87% year over year to $385 billion, including a 25% increase from net inflows and a 62% increase from changes in market impact.
On page 19 of the presentation Youll find our new disclosure on net flow contribution to the year over year change in AUM.
The segment operating margin of 65% increased one percentage point compared to the prior year period.
Market technology revenue increased $19 million or 23%.
The increase reflects organic revenue growth of $3 million or 4% $12 million from the acquisition of <unk>, which closed mid quarter and a $4 million impact from the changes in FX rates, excluding a temporary $7 million purchase price adjustment on deferred revenue associated with the closing of the <unk> transaction paraffin revenues would have totaled 19.
$10 million for the partial quarter period. Following the February 11 to 2021 close.
On slide 10, we show the runoff of the remaining $23 million purchase price adjustment on <unk> deferred revenue.
The $3 million organic increase in <unk> was driven primarily by higher SaaS based anti financial crime technology revenues in particular from our markets and trade surveillance products.
For market technology was $416 million in the first quarter of 2021, an increase of 62% compared to the prior year period, largely due to the <unk> acquisition, excluding <unk> market technology <unk> increased 10% in the period.
In addition to the new market technology reporting Edina mentioned earlier, we are supplementing this with another revenue breakdown disclosing the recurring subscription SaaS and support licensing revenues as well as the nonrecurring professional services contributions to help investors and analysts track our progress as we continue to expand the SaaS contribution.
Across both our market infrastructure infrastructure technology, and anti financial crime technology businesses.
The segment operating margin was a negative 2%.
Could have been a positive 5% when excluding the noncash purchase price adjustment related to Verifone deferred revenue.
The 5% margin is not a level that we believe reflects the potential of the business and we continue to feel optimistic about our ambition for a margin that supports market technology being a rule of 40 business in 2023 and beyond.
While the impact of the <unk> purchase price adjustment on deferred revenue is temporary and will be eliminated over the next four quarters on a core basis. Two main factors will drive our margin expansion over the coming years.
First our mix of SaaS subscription revenues within market technology is increasing significantly.
Looking ahead, we expect it to continue to grow as we execute our strategy. This is critical because our SaaS businesses have approximately two to three times. The average contribution margin of the on premise solutions.
Second we accelerated hiring in certain areas of our market technology business in recent quarters and on a temporary basis allocated more of our existing resources to relatively low margin installation work in particular and the most complex on premise clearing solutions.
We expect the margin impact to gradually diminish over the coming years.
Corporate platform revenues increased $27 million or 21% organic revenue growth totaled $24 million or 19% and there was a $3 million impact from changes in FX rates.
The organic revenue increase was primarily driven by higher U S listings revenues due to an increase in ipos and higher NASDAQ private market revenues together with an increase in both IR and ESG Advisory services revenues.
NASDAQ private market revenues were about $6 million to $7 million higher than the average quarterly run rate of 2020 and while this business is average in over 40% CAGR in the last three years, we would expect to see at least $5 million and.
<unk> decline in <unk> 'twenty, one from Npm's, particularly strong first quarter.
Corporate platforms, <unk> was a $487 million and increased 12% compared to the prior year period the.
Segment operating margin of 42% increased seven percentage points compared to the prior year period and was driven by both the unusually strong activity on the NASDAQ private market as well as from the substantial increase in the listed issuer base.
Market services, net revenues increased $57 million or 20%.
Organic revenue increase was $48 million or 17% and there was a $9 million impact from changes in FX rates.
The organic increase during the period, primarily reflects increases in cash equities and equity derivatives net revenues due to higher industry trading volumes and an increase in trade management services revenues.
The segment operating margin of 67% increased four percentage points from the prior year period, reflecting strong operating leverage on record trading revenues.
Turning to pages nine and 14 to review expenses.
Non-GAAP operating expenses increased $57 million to $393 million.
The increase reflects a $24 million or 7% organic increase.
And $18 million increase from the impact of acquisition and a $15 million increase from the impact of changes in FX rates.
The organic growth in expenses reflects the sum of one relatively consistent low single digit percentage increase related to hiring and wage inflation to higher compensation expense as variable performance linked compensation compensation increased reflecting the companys outstanding growth and three cost related to <unk>.
What has been an incredibly active capital markets backdrop for example costs related to increasing our treating capacity as well as marketing commitments supporting the extraordinary number of IPO wins in recent periods.
Turning to slide 10, we are narrowing our 2021 non-GAAP operating expense guidance to a range of one $5 7 billion to 162 billion.
To reflect strong and broad based organic revenue growth in the first quarter and the impact that growth has on variable expenses like performance based compensation and marketing commitments.
As we look towards the remainder of the year overall as performance continues to be strong we would expect to come in at the high end of the expense guidance range. In addition, we expect year over year organic growth and expenses to be elevated, particularly in <unk> 21, compared to <unk> 20, as the prior year period had a.
<unk> reduction in travel and other in office activity due to the onset of the pandemic.
As well as lower new listing activity and less performance based compensation due to the uncertain financial environment in <unk> 'twenty.
Yeah.
Moving to operating profit and margins non-GAAP operating income increased $93 million in the first quarter of 2021.
Our non-GAAP operating margin of 54% increased two percentage points year over year.
Net interest expense was $28 million in the first quarter of 2021, an increase of $4 million compared to the prior year period due to incremental interest expense related to the financing of the <unk> acquisition.
Consistent with our reporting practice interest expense related to acquisition financing that was incurred prior to the mid quarter close of the transaction was excluded from non-GAAP results for this quarter, and therefore, an incremental $3 million to $4 million of <unk> $3 million to $4 million of Ericsson related interest expense will be reflected in the second quarter results.
The non-GAAP effective tax rate was 24% for the first quarter of 2021, which includes a benefit related to the vesting of certain equity awards for the full year 2021, we still expect our non-GAAP effective tax rate to be in the range of 25% to 27% and barring any changes in the corporate tax law.
<unk>, we expect to come in near the bottom end of the range for the year.
Yes.
Non-GAAP net income attributable to NASDAQ for the first quarter of 2021 was $327 million or $1 96 per diluted share compared to $251 million or $1 50 per diluted share in the prior year period.
Turning to slide 11 debt increased by $349 million versus <unk> <unk>, primarily due to net issuance is a $435 million of commercial paper used to fund a portion of Eric <unk> acquisition, partially offset by an $87 million decrease in the book values of our euro bonds caused by changes in FX rates.
Our total debt to EBITDA ratio ended the period at three four times a decrease from three five times in the fourth quarter of 2020.
During the first quarter of 2021, the company paid common stock dividends in the aggregate of $81 million and repurchased common stock in the amount of $162 million.
Today, we are announcing a 10% increase in the regular quarterly dividend to <unk> 54 per share.
Additionally, during the first quarter the board of directors authorized an increase to the share repurchase program of an additional $1 billion subject.
Subject to the closing of the sale of our U S fixed income business and acceleration of the issuance of NASDAQ common stock related to the sales.
As previously communicated we intend to use the proceeds from the sale as well as available tax benefits working in clearing capital of the business and other sources to repurchase shares in order to offset EPS dilution. We continue to expect the sale to be temporarily 2% dilutive to non-GAAP EPS in the 12 month period following the <unk>.
Clothes, and we see immaterial dilution and periods thereafter.
Overall, the actions taken during the first quarter support NASDAQ accelerated evolution and allow the company to further concentrated resources on technology analytics and ESG opportunities.
Thank you for your time and I'll turn it back over to the operator for Q&A.
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.
First question comes from Rich Repetto with Piper Sandler Your line is open.
Good morning, Dana Good morning Ann.
And I guess, congrats on the strong quarter unique.
Operating conditions.
My question has to do is broad has to do with the growth rates that we're experiencing.
If you look at the overall growth rate, if you look at corporate platforms and investment intelligence.
Brian three to Forex.
The guidance range.
And given.
You still got Paul we.
Comparisons another quarter or two relatively stable comparisons.
So when do you look at adjusted I guess a lot of this is recurring revenue.
Highlighted when you look at adjusted Nucor.
The conservatism of the.
Organic growth rate guidance.
Well thank you.
Well I would say that we are we only changed our outlook for our growth rates are what I would say medium to long term revenue growth rates about two quarters ago. So I would say that our rich we're still we still believe that those are the appropriate way the appropriate growth rates.
At least based on kind of a three to five year time horizon, but having said that I do I do agree with you that we are performing well ahead of our outlook and we're obviously extremely pleased with our performance I think that as we continue to gain more traction across our platforms and particularly in the solutions segments. We certainly can look to make those adjust.
<unk>, but we're sticking with the outlook at this point.
Okay, and theyre going to be increased by Verifone as well.
And we do actually make some adjustments to that and when we announced the verify Verifone acquisition. So we did we did make those adjustments as part of that that announcement.
Okay. Congrats on the strong quarter really appreciate it.
Yeah.
Thank you. Our next question comes from Dan Fannon with Jefferies. Your line is open.
Thank you good morning.
My question is on the market Tech side I know you might have said this day.
<unk> contribution is the revenues in the quarter and then into <unk>.
We look ahead as you talk about the margin and reiterating the long term outlook for the margin could you help us in the short term as we you mentioned increased cost plus.
The backdrop from a revenue environment, Joe we're looking at what are we looking forward to see this margin March higher or is it kind of a normalization of expenses plus the revenue or could we just see margin expand without.
Based on where things sit and kind of the normal progression of the other.
A portion of the business sure sure.
Sure. So on your first on your first question about <unk> contribution so within the numbers for the partial quarter, but we had $12 million of revenues related to <unk> and so and that included a $7 million worth of deferred revenue write downs and so on a gross basis. It was $19 million for the partial quarter, which we closed the deal on.
<unk> 11.
On your relates to your question on architect margin.
As we look forward to 2023, and our ambitions of achieving the.
The rule of 40 for the overall market tax now we think the primary way, we're going to get there is through revenue growth.
Part of that will be bringing <unk> onboard.
And then then the other two things I'd point to is we should look to we're going to continue to expand our SaaS offerings, we talked about the growth in our SaaS business and the fact that our SaaS.
Businesses come at higher contribution margin. So as we continue to expand there we will see an impact on the margin and then the last thing that I'd mention is just that.
We do have some incremental costs now to deliver on some of our larger more complex projects. We've added cost and we expect them to gradually decline over time. So when you put those three things together, we expect to achieve.
That rule of 40 in 2023, and I think I'll just bring it back just important to note that we are confident in the prospects of this business and our ability to be successful here.
Okay. Thank you.
Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.
Yeah, Hey, good morning, everyone.
On the listings business can you just.
Describe a little bit more what happened in the first quarter I know you.
You Dimensionalize, the private market impact I think $7 million, but even without that it was still a very very strong quarter on a sequential basis and I know you you highlighted specs in particular and I know it was a very strong spec quarter, but usually the initial listings cheese could amortize over many years. So just wondering if the accounting difference.
On spec listings or any anything that you could point out to kind of bridge, the gap and and how sustainable that should be going forward given that some of the spec.
It hasnt seems to be waning a little bit.
Thanks, Alex.
Well I think that really when you look at the the revenue performance in the listings business. It is on the back of <unk>.
Three very strong years of new listings, which of course gets us to a new annualized recurring rate of listing revenue.
Had we had over I guess in 2019, we had 189 Ipos in 2020, we had over I think 314 Ipos and then this year already we've had 275 ipos.
You are right, though with the stack listings, it's a little different day.
First of all day, they tend to come in at the capital market because they want to pay the lowest fossil fees. So contributions from stacked if we look at kind of overall <unk> annualized annual listing revenue is only about 5% of our total listing revenues. So it is a it's not a huge contributor and and of course, when they do combined with <unk>.
Companies than we have the opportunity to bring that company into NASDAQ as a as an operating company and that tends to accrue to a higher fee rate. So there's a lot of opportunity from the facts as they make this combination is to increase our revenue contribution.
But it also has a pretty limited risk in terms of if those facts are not able to find operating companies they want to combine with.
But generally speaking Alex it's just I think it's kind of the compounding effect of multiple years, where we've been we've been winning the majority of Ipos and frankly, the vast majority of the operating company Ipos.
And it's just been a very favorable environment for us to be able to bring a lot of new companies to market. So I think it's a combination of all those things and I should mention also we have 32, new listings in the Nordics in the first quarter as well and so that that's that's really bucking the trend in Europe.
And we continue to see a lot of strength in our Nordic business as well.
Great. Thank you.
Thank you. Our next question comes from Ari Ghosh with Credit Suisse. Your line is open.
So.
Back on market day.
Looking at MTV, and Brian bucket, including the Culberson contribution that you called out that Luke.
Stronger than what we expected just looking at that $46 million bucket for the quarter can you talk about even though you're a little lumpiness all seasonal factors driving that during the quarter. If there's anything that we should be thinking about or even as we think about the rest of the year.
Related to that.
Noted that you continue to see a little bit of pressure within the market data.
<unk> as a result of the pandemic.
Yes entirely gone away, so just any follow us too.
So I think about the legacy business ex.
So better Tim.
You gave all the east 11% organic growth rate as we think about 2021.
Is that still.
Joe feasible and reasonable kind of.
We'll create again I know, it's more of a medium term risk, but if we think about 2021 when we think about the legacy business.
11 ish still an achievable rate given some of the headwinds and pressures that you see in the business. Thanks, a lot sure yeah on the anti financial crime side. It is largely a SaaS oriented business. There are yes. So.
So we think about what we put into NPA anti financial crime sub segment or the surveillance solutions to markets. Some of those are still on prem, but they are long term license or license revenues not a lot of project related cost because thats a pretty a more standardized service then you have the SaaS business related to the <unk>.
<unk> for our trade it trading firms and it's all SaaS and then you have the risk management solutions to both markets and broker dealers and there that has both a combination of on Prem and SaaS solutions and then lastly, you have <unk>, which is an entirely a SaaS business with very low low professional fees. So so generally speaking.
It's what you are seeing in the quarters or is it relatively recurring element of kind of what the potential of the businesses as I mentioned before we did have 10% growth in our anti financial crime business absent <unk>. So.
We continue to see really strong demand for all of those solutions I think that in terms of the overall growth rate for market Tech absent <unk> as we mentioned the market infrastructure technology part of the business has been more materially impacted by the pandemic and we are still in a pandemic. So we're still not able to go with.
Clients. These are generally and often times, particularly for new clients. These are large scale decisions that theyre, making to have us partner with them to build and support them and their core business technology. So they.
They tend to be sales cycles that result from our relationships and it's harder to harder to establish and manage those relationships. If we can't visit our clients. So that is still the case because of the pandemic. However, having said that our existing clients. They really spent last year focusing on managing the very high volume.
Meant in a pretty dynamic capital markets environment as well as they come into 2021, we are having more constructive conversations with them around thinking longer term again thinking about how they want to continue to advance our technology. So we're certainly seeing encouraging signs of working with our clients, but as I said in my comments, we would expect that.
The short term growth rates on that part of the business would be it will be moderated.
And but over time, we're not changing our our medium to long term outlook on the overall business because we have confidence it will recover.
Great. Thanks, so much sure.
Okay.
Thank you. Our next question comes from Mike Carrier with Bank of America. Your line is open.
Hey, good morning, and thanks for taking the question.
The organic growth has been great in some areas and benefited from the favorable market backdrop that you mentioned for areas index listings, but.
But has that moderated when you get past Covid can you highlight some of the areas maybe day natively impacted by Covid.
Yes.
Over the last couple of quarters. It talks about tests that could have potential upside to a more normal level and maybe offset some of those areas that eventually normalize at some point, yes sure. Thanks, Mike So.
I think that the there.
There are two areas, we've been highlighting that I think youre starting to see more of a recovery already in investment, but investments certainly in 2020 had more of an impact and I would say investment <unk> I should say together.
The investment management community and the asset owners. We're also dealing with a lot of change a very dynamic environment. They werent sure. Whether this is going to be sustainable market trend and so they were they really pulled back on buying decisions around any sort of analytical tools, so, but what we're seeing as we've mentioned in the first quarter is that we maintain those.
Conversations and relationships we definitely.
Think through our all in pricing model that we shifted to in 2019 related helped us actually retain a lot of clients in 2020, and therefore now coming into 2021, we're seeing that investment managers and asset owners are back in the market too to really find ways to frankly manage these very dynamic portfolio. So.
And we've also done more to create a more all in solution, particularly for asset owners across the globe as an investment. So we're seeing a lot of nice upswing now coming into 2021 off the back of a pretty impacted 2020, I think market Tech as we've mentioned, particularly the market infrastructure technologies. The other area that's been impacted and then.
Across the rest of it I would say that it's actually I would say somewhat in the governance area on the governance some platform solutions.
It's harder when we do a lot of work there, but again I think a lot of corporates were dealing with downturns, we're dealing with a lot of challenges.
And so it was a harder sales environment for that team as well last year and we're starting to see some recovery there as well, but that would be another area, where we hope that we would have more pickup in 2021 and beyond.
Great. Thanks, a lot sure.
Thank you. Our next question comes from Chris Harris with Wells Fargo. Your line is open.
Okay.
Great. Thank you can you update us on how you are feeling about their backlog and outlook now.
The acquisition is closed.
I believe this was a business that was growing around 30%.
Prior to the acquisition and is that kind of like a good bogey to be thinking about going forward.
I can say that they ended 2020.
Very much on plan and they've started 2021 very much on plan.
So we're very pleased.
Business.
It's a great business, but it's also just a great team and they are extremely focused and I think that there.
Because on the right path forward. So so they're very much on plan with what we talked about when we announced the acquisition.
Okay, great. Thank you.
Okay.
Thank you. Our next question comes from Brian Bedell with Deutsche Bank. Your line is open.
Great. Thanks, good morning folks maybe.
And maybe also just on <unk> and another one.
Just in terms of that revenue contribution run rate I think you said.
<unk> million dollars pro forma with the revenue recognition so given that clues early to mid February should we be should we be thinking about.
Core revenue number around that 35 million Eric.
For the second quarter, just trying to gauge sort of the volatility or stability of that revenue stream.
And then.
If you could talk about.
Maybe thoughts around revenue synergies with being able to introduce deserves and products and team to the tier one.
And tier two banks and I know thats, a long timeframe that will evolve over time, but maybe just some thoughts about how you think that might progress and add to the.
Ericsson revenue base sure go ahead insurance, so I'll start on your on your first question Brian.
You should think about <unk> as we shared as part of that as part of closing the transaction and announcing the transaction.
An estimate of about $140 million in revenue and gross revenues before the purchase price adjustment. So we provided the details on how the purchase price adjustment is going to play out over the year. If you take that $1 40 and back out the purchase price adjustment.
And then apply a proration based on February 11th close date.
That's how you can think about what our expectations are at this point for 2020 for 2021, I'm sorry net return.
Okay. Okay.
With regard to the longer term.
I have to say that we've already gotten off to a really really great start and working with them and collaborating with them on client introductions and understanding where they want to focus there their sales activities, but they also are really really focused on continuing to.
Invest in R&D invest in the business. So that we can really become the preeminent.
Anti financial crime.
Acknowledging provider to <unk>.
Banks of all sizes rates, so the largest banks in the small things as we mentioned when we announced the deal and at closing we do we will be working with them to support their investments.
And certain things at certain technology capabilities that we have that we think that can be additive to their capabilities that can really make it so that as we go into the tier one and tier two banks. We haven't just two banks, we have just a fantastic solution for them, but that is as you had mentioned mulch.
Our multi year strategy and but we are we've gotten a lot of inbound demand from our tier one and tier bank tier two banks to understand what the solution is and how it works.
Actually able to go in with some point solution sales into particularly tier two banks that.
That we think that are going to be relevant and allow us to land and expand and then we had or I should say <unk> had their first clients sign up for to help them with some fraud detection and theyre in a European banks. So we're pretty excited about the fact that even just right on the heels of the acquisition, we're already seeing opportunities there. So.
We see a lot of a lot of good opportunities for us to collaborate with them that will support their growth rate over the longer term.
And it sounds like great early progress. Thank you.
Thank you. Our next question comes from Simon <unk> with Atlantic Equities. Your line is open.
Hi, Thanks for taking my question I wanted to carry on with the topical paraffin here just because I think you've mentioned before that you fully expect at some point to be able to accelerate the revenue growth as you penetrate as tier one to two but if I understood. It.
As a case of getting the product right for a particular market and I'm interest, but you mentioned that you think.
Burke and have signed our first European Bank.
Last quarter.
It wasn't long ago, where youre still trying to us tweaked up Paul.
Alex for the wind market.
Could you give us a sense of where you are in terms of the readiness for tier one and tier two as it stands today.
Yeah, I think that day.
<unk> certainly has seen really nice demand pick up in the what I would say $50 billion plus in assets kind of banks that they continue to penetrate that that sector quite successfully and they have an all in full solution that really supports that kind of a full platform for those banks as they've been.
Going in and starting to engage with $100 billion in plus type of banks.
Really the large the very large banks they are finding opportunities to come in with a specific solution like a part of their offering and not that they do have part of their offerings are quite relevant to the needs of those banks in terms of what I'll call more of a like a point solutions approach, but what we want to be able to do is become that all in platform partner.
To those banks over time, so there may be some shorter term opportunities like we have with the European company.
To have a nice specific sale of a specific capability now that were very very good at but then over time I think that the real revenue opportunity will come if we can really build that out to become more of a holistic platform partner. So I just wanted to it's obviously very early days there is a lot of enthusiasm a great sense of partnership.
And the ability for us to open doors, but but it will be it will take time for us to get the solution in investment that we want to make in the business. So that we can get that solution to become the preeminent platform across the entire industry.
Okay and just following on from that.
Could you walk us through sort of what the competitive environment looks like.
Paul detection financial crime space.
It seems are fragmented to me.
But I'm kind of curious how you're just competing with.
Good inefficient internal systems predominantly at the banks or the actually all day.
The legacy providers need to displace.
Yeah.
It's a combination of things it is quite it is actually quite a fragmented market. It's also a huge market opportunity right. So youre talking about $12 billion of potential Tam I think that we're positioned to be able to serve at least $6 billion to $8 billion of that Tam. So.
It's a huge market opportunity, it's a huge and growing problem. So I kind of equate it in some respects.
Well first of all I think that there will be certain platforms that kind of emerge as the ones that the banks rely upon for all of their core work and then there'll be point solutions and other innovations that come in on top of that that we should be in a position either.
Wire or integrate or partner with to make it. So that we can continue to manage the dynamic needs of our clients.
So I think that is the case, but there are some incumbents then I would say many are on Prem solutions that are not nearly as nimble are flexible which is what I think <unk> been very successful at displacing over recent years as well as a lot of internal build particularly for the larger banks the internal build and then at the very smallest and there are a lot of small.
I'll point solution providers that Verifone also compete very successfully against in and they've done a nice job of working with a lot of the more core banking platform providers to integrate <unk> into those platforms. So that.
Our client is taking one of these core platform banking platforms. They know that they have the benefit of <unk> as part of that.
Great. Thanks, John Thank you very much sure.
Thank you. Our next question comes from Ken Worthington with Jpmorgan. Your line is open.
Hi, good morning.
We've seen a steady increase in equity trading in dark markets and off exchange.
Does moving volume back on exchange rank in your priorities when communicating with the new leadership at the FCC and if so what tools and approaches do you think makes the most sense for regulators to consider should moving trading from the dark mortgage to the lit emerge as a top priority for them.
Great.
We're excited to have garry against their come into the role of chairman I think that it's great to have.
A leader within the cell that really understands market and market structure. So he is certainly a market structure expert.
In terms of the priorities I think on the back of some of the retail trading trends and the hearings that happened in Washington, I do believe this will be a focus area for the SEC and they're already working on a kind of a white paper a thought piece around it to go out and get comments and input from the industry. When it comes to part of that is is it a disk.
<unk> of the dark trading because when you look at the composition of the markets in the U S.
Almost it's like 40%, 50% I would say, 45% or so of the trading today is done in the dark and the vast majority of that is retail so that means that the retail orders are not getting exposed to the exchanges and theyre not therefore contributing to price discovery.
And therefore, then you have to sit there and say well do we have the best reflection of price discovery.
Only half the market is being exposed and displayed so I think Ken it is an area of focus for us. It's one of several things that we I think that the SEC and us and others will be focused on as we look at how to continue to make market structure improvements.
One of the great things about this business honestly, Ken as you know, it's like kind of an eternal learning curve. It's one of the things that keeps me so interested in and it's just fascinating to see how the markets evolve, but as we continue to evolve those markets I think that some focus areas that we think will be important to look at settlement cycles to sales.
Go from people as to the T plus one as well is to look at the margin calculation process and Anna.
And giving people a little bit more clarity as to the margin obligations. The second is onshore sales disclosure. We do believe that that long positions are disclosed short positions or not and it just seems I guess.
And Unfortunately a cemetery.
And then the third is on market structure and trying to level, the playing field between exchanges and off exchange trade a player players, but not in a way that's unnatural, but in a way that just allows us all to compete.
Successfully in one of those examples would be <unk> site minimum tick sizes minimum trade sizes and things like that but that's one of several things that we would want to have the SEC consider.
Great. Thank you very much.
Yeah.
Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.
Good morning, and thank you for taking my question I wanted to go back to NASDAQ private market could you. Please talk about how sustainable do you add to it.
NPM and then after coinbase directly stink, how should we think about the role of NPS in the whole crypto space. Thank you.
Great.
So <unk> did have an outstanding quarter, and frankly, we had a really really strong year in MTM last year too.
It really picked up in the second half the first half, particularly as we got into the pandemic became really slow.
And then suddenly in the second half, we had a whole range of programs coming out and it really pick the activity picked up and gave us a great fourth quarter and now have a great first quarter I think that.
I think that we should recognize that more and more companies are seeing more and more private companies are seeing NPM is a good way for them to manage long term liquidity needs of their employees and our investors without having to pick two.
Bring themselves to the public markets or ahead of bringing themselves to the public markets, where as you mentioned with coinbase.
Having some of that liquidity done in the private markets ahead of time kind of position them really well for their direct listing and gave them an investor base that they could walk into their listing with <unk>.
That was very sustainable and strong and so I think that would be a good example of how companies I think increasingly are using the private markets.
As a kind of a lead in into a direct listing and we see that as as it really encouraging sign for our business and further relationships, we have with our companies I think the crypto space. It's a good good question Owen as to whether more crypto oriented.
<unk> oriented companies will be coming into the public markets on the back of coinbase, and whether or not they also would choose that path and if thats. The case and I think the NASDAQ private market is a natural and natural way for them to manage that private liquidity ahead of an IPO.
Got it thank you very much sure.
Thank you. Our next question comes from Kyle Voigt with <unk>. Your line is open.
Hi, Thanks for taking my question, maybe just a follow up related to correct Joe.
We're seeing a significant increase.
In institutional adoption and some large traditional financial players stepping into the space.
For the first time.
I think your technologies.
Some quick ocean today, but just curious to hear whether you think there's an opportunity to eventually more directly participate.
And in that space.
Great. Thanks.
The way I look at the crypto markets and the overall crypto currency economy is that it's in a very it's still in a very early stage and that's that's great because I think inc.
You've seen this this really elegant construct to come into the ecosystem in terms of what the blockchain and what it what you can do with it.
Seeing now some really interesting intangible applications of it that have been more geared up until recently towards retail, but now youre starting to see institutional players recognizing that this is Anna.
In a contract that really could become part of mainstream commerce. So.
That classic product lifecycle, that's really starting to develop in and Youre seeing where all the early experimentation turned to early businesses turned into a proliferation of businesses now are turning into.
I would say more concentrated but still very very early.
Early lifecycle type of companies emerging and so it does give us time to for us to figure out the right path for us.
<unk> as you mentioned our initial.
Involvement in crypto has been with our technology and that's been really great.
We are partners with several crypto markets on their surveillance and their technology and that's one of the big concerns with crypto has been around making sure that the markets are fair for all participants into our technology is highly relevant there.
Managing trading and frankly, the scalability of trading what they've had to deal with our systems are designed for scale. So I think that that also really gives us a real advantage.
And then we actually have launched with the with a partner.
Crypto index, and we've turned that into investable products outside the U S. Similar hoping with our second partner took kind of hopefully bring that into the U S in coming months.
So we do have some really interesting ways for us to participate in the crypto space, but we're still evaluating what should our long term will be and how will the markets evolve and.
And obviously there are some great great winners, including Coinbase of course in terms of developing the marketplaces of the future.
Thank you.
Thank you our next.
Question comes from Ken Hill with Loop capital Your line is open.
Great Good morning.
I had a question about ESG within your complex there.
Put up good 8% growth here that seems to be above your targeted rate for corporate platforms, I know thats kind of overshadowed by the listing services piece of it but could you give maybe an outlook on ESG and how thats developing.
Within within NASDAQ and then maybe how that varies by geography, as well and what you would expect maybe here in the U S. Here overtime. Thanks sure. Yeah, we're really encouraged by what we've been doing to develop out our ESG solutions and again. It is early days at the Investor Day, We gave a view that we would hope that.
These types of new ESG services that we've launched and products that we've launched would generate at least $50 million over five years.
So $50 million a year five years later.
Sure if you're clear.
But I think that we obviously are quite encouraged by the fact that we've had some really great adoption of our ESG solutions by companies.
Also have actually incorporated our ESG solutions into our IPO package now several of them will get more and more companies adopting them and that gives us longer term revenue opportunity with them as well.
And and we do obviously think that this is a trend that is here's day. It is.
Something that we believe will drive a lot of corporate decision, making in the future and we want to be that partner to the corporates to help them navigate this landscape the business that we have launched and the services. We offer are as popular in the U S. As they are in Europe. So we already have.
I'd say, we had really good adoption of the products in the U S.
But in Europe, we've had it's more mature and so theres more.
We had more sustainable bond listings and other capital listings that also we support in Europe. In addition to helping our clients through standard setting and reporting et cetera. So.
It's a it's an interesting and dynamic space and it's one we're quite encouraged by.
Got it thanks for taking the question.
Thank you Anna.
That's all the time, we have for questions I'd like to turn it back to the data for closing remarks, great. Thank you and thank you very much for your time today, we are very pleased to see our businesses delivering strong organic revenue growth in the quarter you guided by our strategic direction, we have a clear focus for the remainder of 2021 as we re imagine markets to realize the potential of tomorrow.
Look forward to updating you all of you on our progress in the months to come and thank you and have a great day.
Yes.
Yeah.