Q2 2021 Nasdaq Inc Earnings Call

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Okay.

Good day, and thank you for standing by welcome to the NASDAQ second 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 1 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, a bit Meyers senior Vice President of Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining us today to discuss Nasdaq's second quarter 2021 financial results on a line or a data Friedman, our CEO and Denison, our CFO, John Zecca, our chief legal.

And regulatory officer and other members of the management team.

After prepared remarks, we'll 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 you Ed and good morning, everyone and thank you for joining us.

My remarks today will focus on NASDAQ second quarter, 2021 financial and business performance as well as the progress we've made to drive forward along our strategic direction.

I would like to begin by acknowledging the NASDAQ team's deep commitment and delivering results for our clients, while creating sustainable value for all of our stakeholders.

Nasdaq's mission reflects our focus on becoming the premier platform and ecosystem for the global capital markets and beyond with unmatched technology insights and market expertise and we made important progress during the second quarter.

Our financial results demonstrate our businesses ability to capture opportunity in a unique economic environment, even as we continued to strengthen its position for long term growth we.

We see strong demand for many of our products and services as corporate issuers institutional investors banks brokers and marketplace operators, all navigate todays rapidly changing world.

Our core foundational marketplaces benefited from an active capital market backdrop that saw record setting industry U S equity and options trading volumes in the first half of 2021. Our client first model has also driven our ability to win the majority of new listings and 1 of the strongest periods of industry activity in years.

Meanwhile, expanding demand from institutional owners for index strategies, as well as asset allocation and portfolio management tools from banks for modern anti financial crime solutions and from corporates for ESG and Investor Relations solutions underpinned our performance in the solutions segment businesses. Our performance in these businesses is also.

A testament to our client centric approach and strategically aligned offerings as we invest in and grow new and innovative technology to meet that demand.

We also achieved other important milestones against our corporate journey this quarter.

First NASDAQ completed the sale of our U S fixed income business to trade web market at the end of the second quarter.

Second we announced our strategic investment in Piero Earth, a leading carbon removal marketplace, along with the launch of our new ESG data hub. These solutions further expand the ways that we can partner with our clients to support their unique sustainability efforts and.

And third we announced yesterday that we are starting an exciting next chapter for the NASDAQ private market as part of our partnership with the group of leading banks and the private market space at.

It highlights both the success of the private market platform, we developed at NASDAQ and the growing interest in developing a robust ecosystem for private company liquidity.

All of these actions underscore our commitment to our strategy and allow us to re prioritize elements of our unique business model to advance our focus on the most impactful secular opportunities.

I will now turn to our financial results from the second quarter of 2021.

Overall, NASDAQ delivered net revenues of $846 million, an increase of $147 million or 21% from the prior year period, driven by 18% organic revenue growth in our solutions segment, and 10% organic growth in our market services businesses.

We continue to execute against key secular growth opportunities as illustrated by strong momentum in our institutional investor analytics in anti financial crime solutions businesses as well as the broad based growth and total company <unk> of $1.8 billion.

This equated to an increase of 22% compared to the prior year period, reflecting both the acquisition of <unk> and a 12% increase in our existing <unk>.

Turning now to specific segment highlights from the second quarter I will begin with our foundational marketplace and corporate businesses.

Our market services segment saw net revenues of $312 million, a 13% increase from the prior year period.

Market services transactional revenues for some of our cash equity equity derivatives and fixed income commodities trading businesses increased by 27% in total in the second quarter of 2021 compared to the prior year period with the largest contributor of this being our equity derivatives revenues, where we experienced strong increases in U S ops.

<unk> industry volume.

Nasdaq's options market, specifically traded $782 million of Av.

Multiply listed options contracts, an increase of 28% year over year.

Driven by an active dynamic equities market. We've also seen increased levels of activity from companies seeking to tap the public market to raise capital, which has resulted in a 13% increase in the overall number of operating companies listed on the U S. On NASDAQ in the last 12 months.

Specifically, we have 352 more operating companies listed on NASDAQ in the U S than we did in June of 2020.

The increase in our number of listed companies naturally contributes to higher industry volumes and contributes to higher trading on NASDAQ in particular since we have approximately 2 times higher market share in our own listed stocks and we havent stocks listed on other market.

I would also like to highlight for a moment another record breaking NASDAQ closing cross during the annual Russell U S indexes reconstitution, which occurred in late June.

The closing cross successfully executed $2.3 billion shares of NASDAQ listed securities representing approximately $81 billion in market value and occurred in under 2 seconds.

This closing cross was 760 million shares larger than our second largest closing cross ever which occurred in March of this year with the triple which exploration.

Im incredibly proud of our team as this milestone under underscores our leadership and operating the industry's most robust and resilient market infrastructure.

Next our corporate platform segment delivered revenues of $154 million or 22% increase year over year day.

Our business continues to thrive with elevated levels of new listings since the market recovery in the second half of 2020.

In our listings business NASDAQ again led U S exchanges for Ipos during the period welcoming 135, Ipos that raised 31.7 billion, including 88 operating company Ipos and 47 back Ipos.

The NASDAQ stock market led U S exchanges with a 78% total win rate on ipos as well as executing the largest direct listing ever coinbase.

In addition to new listings that we also welcomed 10 switches from the second in the second quarter of 2021, representing a combined $183 billion in market value, including Honeywell at Dow 30 company.

The total market value of all companies transferring to NASDAQ since 2016, now exceeds $1 trillion.

Meaning Meanwhile, our Nordic listing platform hosted 62 ipos in the second quarter, bringing the total to 86 in the first half of 2021 contributing to an 11% year over year increase in the Nordic listed issuer base compared to the prior year quarter.

Now I think is proud to be the exchange partner supporting companies throughout their corporate lifecycle with our commitment to providing issuers with an industry, leading market model and a full suite of Investor Relations Board engagement and ESG solutions.

Revenues in our IR, and ESG services increased $4 million or 8% to $56 million in the second quarter compared to the prior year period as we continue to see strong demand for our Investor Relations and advisory and ESG product offerings.

The economic impacts of the pandemic combined with the sudden and likely lasting landscape of virtual or hybrid investor engagement has increased corporate focus on investor relationships and has accelerated their professionalism <unk> of their ESG programs, both of which has intensified the demand for new data and tools to power their programs.

Now, let me take a minute to talk about the actions we've taken to advance the NASDAQ private market going forward. This week, we announced an agreement to contribute NASDAQ private market into a joint venture with Silicon Valley Bank City Goldman Sachs and Morgan Stanley.

This creates a new entity to build upon MTM success, becoming the leading marketplace platform for issuer led private company tender transaction to.

Partnership will enable increased investment and a broader set of capabilities designed.

To enhance <unk> position as the go to market place for private company liquidity.

Now is it private market will continue to expand from its foundation of facilitating private company tender programs to enhance and refine its buy side book building auctions investor block trades and pre direct listing continuous trading programs.

Additionally, the platform will provide end to end settlement and through the new ownership structure structure will create a unique and powerful distribution network, serving private companies and institutional investors.

<unk> market technology business will be contracted to supply <unk> with this.

As technology platform on a go forward basis.

Now as a private market talented team has made strong progress in the 7 years since we established the business as measured by the close relationships, we've built with more than 250, leading private companies worldwide.

The more than $30 billion in transaction volume that they've executed for many of the world's largest private companies. This new entity will expand upon that success going forward.

In the last 12 months ended June 30th revenues for NASDAQ private market increased $13 million or approximately 200% over the prior year period going forward with our partners, we expect to unlock significantly more value for our clients and shareholders by advancing the market for private company shares with a high integrity advanced platform that facilitates law.

Quiddity in new ways and builds on the momentum that we've developed over the past several years.

Now, let me turn to our market technology and investment intelligence segments.

Our market technology segment delivered $117 million and revenues of 39% increase year over year, including a 5% organic increase from our existing business and an additional $27 million contribution from <unk>.

Revenues in the second quarter of 2021 also included a temporary $10 million purchase price adjustment on deferred revenue associated with the closing of the <unk> transaction.

In our anti financial crime technology business revenues increased $29 million or 88% driven by the inclusion of revenues from our <unk> as well as the continued growth in surveillance solutions.

<unk> is part of NASDAQ for its first full quarter, we continue to find great opportunities working collaboratively with the Verifone team to open doors to new clients and expand their footprint.

<unk> signed 36, new clients during the second quarter, and we remain extremely pleased with the business and its growth potential as it achieves its mission of fighting financial crime.

And our marketplace infrastructure technology business revenues increased $4 million or 8% in the second quarter of 2020, sorry, 2021 compared to the second quarter of 2020.

New order intake for market technology hit a 6 quarter high at $81 million excluding <unk>.

Technology market technology, including.

<unk> increased 9% year over year also including excluding the impact of Ericsson. If you include Verifone, NASDAQ NASDAQ market technologies <unk> increased 61%.

Turning to our investment intelligence segment, we delivered net revenues of $263 million up $50 million or 23% from the prior year period.

Overall assets under management, and Etp's benchmark to NASDAQ indexes totaled $415 billion at the end of the quarter, an increase of 53% from the prior year period.

We are pleased to expand our long standing partnership with Invesco during the second quarter with the launch of 2 new thematic technology ETF tracking the NASDAQ biotech index and the <unk> semiconductor sector index.

These 2 indexes are the longest standing much benchmarks for their respective sectors and in the past year have increase in relevance for investors given the recent pandemic related events.

We also continue to see strong global interest in our index franchise with 12 of 15, New license ETP launches in the second quarter occurring outside of the U S.

We are committed to bringing investment opportunities through our index partnerships and empower investors globally with access to diversified investment opportunities.

For example, XP, Inc. A technology driven investment management platform in Brazil launched 1 of the first locally listed NASDAQ100, ETF offerings in Latin America during the second quarter, while <unk> also from Brazil partner with NASDAQ to launch the world's first ETF available in Brazil to investors utilizing the NASDAQ Crypto index.

During the quarter to ETP sponsors Blackrock and Vanguard announced that they would be switching and consolidating their relationships with some index providers and as a consequence certain of their products would no longer be licensing Nasdaq indexes.

We're always disappointed to lose sponsors the loss had a minimal financial impact, which Ann will touch on in her comments and the continued expansion of our relationships with the broader sponsor universe as well as the continued innovation and growth of the index products suite gives us great cause for optimism going forward.

Turning next to our analytics business, we delivered revenues of $50 million, a 14% increase from the prior year period due to growth in investment and <unk> revenues from higher new sales and increased retention driven in part by the success of the enterprise license contracting initiatives, which spread usage of investments unique analytics to <unk>.

More users and more business areas of our client base.

Lastly, revenues in our market data business growth rose, 5% as compared to the prior year period to $106 million, driven primarily by expanding international demand for proprietary data products.

As our business, our clients and the broader market begin to prepare to operate in a post pandemic environment. We're excited to carry forward the strong momentum from the first half of 2021 and into the future.

1 increased area of focus for us is ESG, which we've seen growing interest from a range of clients in both the U S and Europe nasdaq's position at the intersection of financial corporate and regulatory communities gives us a unique perspective on corporate sustainability from this vantage point, we're actively engaging with clients to help them successfully navigate the cause.

<unk> and fast maturing ESG landscape, we were thrilled to have the opportunity in the second quarter to add Piero Earth marketplace for carbon removal solutions to help our corporate clients meet their emissions emission reduction commitments.

At the same time as a public company ourselves, we engage with our employees and our communities to improve our own practices performance and transparency on the on our own ESG journey in that regard I encourage our stakeholders to review our recently published an expanded sustainability report, which is available on our website.

As I wrap up I want to highlight how each of our businesses has expanded the diversity and depth of their client base in recent years, which underpins the strength and resiliency of the NASDAQ platform as you move through each quarter are strong engine of talent and technology is allowing us to expand our position in the capital market and ways that can capitalize.

<unk> on the powerful secular tailwind in a post pandemic period.

We're leading NASDAQ into the second half of 2021 with incredible momentum and I look forward to updating all of you on our progress in the months to come and with that I will turn it over to Anne to review our financial results in detail.

Thank you Dana 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 reconciliation of U S. GAAP to non-GAAP results can be found in our press release as well as in our file located in the financials section of our Investor Relations website.

At IR Dot NASDAQ Dot com <unk>.

4 we reviewed our financial comparisons and developments I want to cover some reporting changes going forward related specifically to some of the strategic developments within the business portfolio that Adena mentioned previously.

With regard to the NASDAQ private market or NPM as recently announced we have contributed this business to a newly formed joint venture for which we will own a minority interest as a result, we will no longer consolidate the results instead, we'll be recognizing our share of net income as a nonoperating item consistent with how we treat other unconventional.

Solidago Investees.

Second with regards to both NPM and NASDAQ fixed income or MSI beginning in the third quarter of 2021, we will reclassify the revenue and operating expenses of these 2 businesses out of the corporate platform market services and investment intelligence segment results for all prior periods.

And move them into corporate items, so that the business results of each of these segments can be compared to prior periods on a like for like basis.

On slide 12, we provide a table previewing the reclassified operating segment results.

Now I will start by reviewing second quarter revenue performance, the 21% increase in reported net revenue of $846 million is the result of organic growth of 15%, including 18% organic increase in the solutions segment, and a 10% organic increase in market share.

This is <unk>.

<unk>, 4% positive impact from acquisitions, and a 2% positive impact from changes in FX rates.

I will now review the quarterly highlights within each of our reporting segments as shown on pages 5 through 8 of the slide presentation.

I will start with investment intelligence revenue, which increased $50 million or 23%.

Organic revenue growth totaled $47 million or 22% and there was a $3 million positive impact from changes in FX rates.

Organic revenue growth during the period reflects very strong growth in our index business as well as strong contributions from both the analytics and market data businesses.

Annualized recurring revenue or <unk> was $547 million, an increase of 11% compared to the prior year period.

AUM and Etp's licensed to NASDAQ indices rose, 53% compared to the prior year period to 415 billion, including $47 billion from net inflows and $113 billion net increase from market appreciation.

Partially offset by $710 billion in negative net impact related to an ETP sponsors switching its index provider.

The investment intelligence segment operating margin of 65% increased 3 percentage points compared to the prior year period.

As a dena mentioned earlier, we will see an additional impact to AUM in the third quarter of 2021 related to previously announced Etp's sponsor index switches. The total revenue impact of all of the 2021 switch has announced to date is estimated to be approximately $3 million per quarter.

Market technology revenue increased $33 million or 39%.

The increase reflects organic revenue growth of $4 million or 5%.

$7 million from the acquisition of <unk> and $2 million positive impact from changes in FX rates.

Excluding a temporary $10 million purchase price adjustment on deferred revenues associated with the transaction paraffin revenues would have been $37 million.

The organic revenue increase which excludes revenue generated from <unk>. During the first 12 months. After the acquisition closed was driven primarily by higher support and licensing revenues and higher SaaS based surveillance solutions revenues.

<unk> for market technology was $432 million in the second quarter of 2021, an increase of 9% compared to the prior period, excluding the impact of <unk> <unk>.

Including <unk> market technology, <unk> increased 61% in the period.

The market net technology segment operating margin was 15% in the period market technology expenses include a partial reversal of the reserve recorded in the fourth quarter of 2020 of approximately $6 million as we finalized client negotiations and updated our estimate of cost to service our client agreements.

Corporate platforms revenues increased $28 million or 22%.

Organic revenue growth totaled $25 million or 20% 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 the expansion.

Our listed issuer base together with an increase in IR advisory services and ESG product offering.

Corporate platforms, <unk> was $509 million and increased 16% compared to the prior year period.

The corporate platform segment operating margin of 42% increased 3 percentage points compared to the prior year period and it was driven by both the continued increase in the listed issuer base and strong activity on the NASDAQ private market.

Market services, net revenues increased $36 million or 13%.

The organic revenue increase was $28 million or 10% and there was an $8 million impact from changes in FX rates.

The organic increase during the periods, primarily reflects increases in equity derivatives and trade management services revenues.

The segment operating margin of 65% increased 1 percentage point from the prior year period, reflecting strong operating leverage on trading revenues.

Turning to pages 9 and 10 to review both expenses in 2021 guidance.

Non-GAAP operating expenses increased 65 million to $392 million.

The increase reflects a $24 million or 7% organic increase of $26 million increase from the impact of acquisitions as well as a $15 million increase from the impact of changes in FX rates due to a weaker U S dollar.

The organic expense increase is 2 main drivers first higher variable performance linked compensation expense, reflecting our outstanding revenue growth and second increased costs related to what has been a very active capital markets backdrop, including expenses related to increased training capacity and marketing commitments supporting our listing client.

<unk>.

We are narrowing our 2021 non-GAAP operating expense guidance to a range of $1.5.9 billion to 162 billion to reflect that our strong and broad based organic revenue growth in the first half of 2021 has impacted variable expenses like performance based compensation and.

Marketing commitments.

As we look forward to the remainder of the year as performance continues to be strong in relation to our medium term growth objectives. We would as we said last quarter expect to come in near the high end of this updated expense guidance range.

Moving to operating profit and margins non-GAAP operating income increased $82 million in the second quarter of 2021, our non-GAAP operating margin of 54% increased 1 percentage point compared to the prior year period.

Net interest expense was $33 million in the second quarter of 2021, an increase of $8 million compared to the prior year period due to incremental interest expense related to the financing of the <unk> acquisition.

The non-GAAP effective tax rate was 25% for the second quarter of 2021 for 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 landscape, we expect to come in near the bottom end of the range for the year.

Non-GAAP net income attributable to NASDAQ for the second quarter of 2021 was $316 million or $1.90 per diluted share compared to $256 million or $1.54 per diluted share in the prior year period.

Turning to slide 11 debt decreased by $189 million versus the first quarter of 2021, primarily due to a net reduction of $214 million of commercial paper, partially offset by $24 million increase in eurobonds book values caused by a stronger euro.

Our total debt to trailing 12 months EBITDA ratio ended the period at 3.2 times a decrease from 3.4 times in the first quarter of 2021.

During the second quarter of 2021, the company paid common stock dividends in the aggregate of $88 million and repurchased common stock in the amount of $248 million.

As of June 32021, there was $1.4.6 billion remaining under the share repurchase authorization.

As previously communicated upon consummation of the sale of our U S. Fixed income business, we issued approximately $6.2 million shares to a third party, we intend to use the proceeds from the sale as well as available tax benefits working in clearing capital of this business and other sources to repurchase shares in order to offset the EPS dilution from the sales.

This week, we plan to execute an accelerated share repurchase program for approximately $470 million.

Let me talk for a moment about share count expectations, our average diluted shares outstanding for the second quarter were $166 million due to timing. This average reflected only a minimal impact of the $6.2 million and <unk> related share issuance at.

At the end of the second quarter, However, diluted shares outstanding were approximately $172 million.

With our plan to execute the accelerated share repurchase program in the third quarter of 2021.

At the current share price, we would retire approximately 2 million shares in the third quarter and roughly a half a million additional shares in the fourth quarter.

We plan to execute additional repurchases to offset the remaining NFL dilution in 2022 and 2023.

We continue to expect EPS dilution from the sale of <unk> to be about 2% in the first 12 months. Following the June 25th close but to diminish to immaterial levels after that.

I'll wrap up by saying that these capital reallocation actions both in terms of the sale of <unk> and the related capital return program support NASDAQ the acceleration of our strategy and allow the company to further concentrate our resources on strategic 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 1 on your telephone please limit yourself to 1 question and if needed 1 related follow up our first question comes from Rich Repetto with Piper Sandler Your line is open.

Good morning Athena.

First congrats on the sort of the sale or spin out of the private market. So I guess my question is can you give us a better feel for that.

The minority interest and what the valuation was.

And then a little bit on the background of how it developed.

You have some significant players some others are in it and I'm backing into I guess $20 million in revenue.

Is that right for sure.

What it would contribute fully last year.

Great. Thanks, Rich so first of all we are really really excited about the partnership we've created and we basically we contributed the NASDAQ private market asset.

The other firms contributed <unk>.

<unk> dollars. So that we can continue to build out the platform and grow and expand the footprint of NASDAQ private market going forward.

We have a large minority stake. So we are the largest shareholder and we will retain that.

In terms of the revenue for the last 12 months you did the math right. So its $20 million for on an on an LTM basis.

So, but I would say that.

We are we do think that this is an opportunity for us to really accelerate our progress.

In the private company share liquidity programs, and we're seeing a lot of a lot of interesting and additional programs or interest from institutional investors from other shareholders to really use that NASDAQ private market for price discovery, maybe continuous trading programs and other things like that and we think that with the part.

<unk> that we have between the west coast with Silicon Valley Bank and their relationships with the venture community in early stage private companies.

The institutional connections that the that city and Morgan Stanley and Goldman half.

And then us as a marketplace, operator, and our expertise and our relationships with later stage private companies, it's kind of like this this great coming together of talent and network and distribution capabilities that we think that we can we can really really accelerate the progress and create a lot of value for our shareholders, even with a large minority interest as opposed to a 100% interest so.

That is the that is the thesis and we're really excited to get going with them and it should actually closed pretty quickly we've gotten a lot of a.

A lot of approvals, so we should be able to get this going very quickly.

Okay, and then the related follow up would be on NASDAQ fixed income.

If I'm looking at slide 12 that means it was about 10 million.

In revenue or so can you talk about the profitability of.

NASDAQ fixed income.

So it's.

It's $10 million for our market services and then there's also revenue coming out of the investment intelligence business, which is the data part of <unk> because those 2 together.

That make up the revenues that are coming out in terms of profitability. It was profitable I mean, it is profitable, but not to the same degree as the rest of our business.

Understood and congrats on moving the strategic pivot forward here yeah, great. Thank you.

Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.

Hey, good morning, everyone.

Yes.

Maybe starting with market.

Yes.

There are some logistical challenges obviously with Covid. So maybe you can give us an update.

How things are looking very strong order intake numbers. So maybe you can talk about that specifically where is that coming from.

Long term contracts or how much of that $100 million plus number should it be inc.

Some statements here.

Pretty soon.

Sure.

So first of all yes, we are definitely seeing progress in terms of growth and demand from clients.

In market Tech. So if we talk specifically about the market infrastructure technology side of market Tech.

We are definitely finding.

Finding finding new clients to serve which is exciting.

We are continuing to grow the number of.

Crypto markets that we're providing technology to digital digital asset markets, providing technology to but also.

Our core clients are after.

After a year of a lot of volatility in a lot of focus just on the here and now Theyre definitely now focused again on what does it means that our infrastructure for the future and our Nexgen system is kind of front and center in our clients a lot of clients' minds. So on so the order intake is reflecting Alex both some re upping up from existing clients as well as some new.

Clients that have come in and so it's a really healthy mix and the conversations that we're seeing around the world are just much much more longer term driven and more focused on the future. So we're excited to see that progressing and now the fact of the matter is though we're still not traveling right. So we're still having to adjust.

It I think pretty well to a remote environment in terms of delivering for clients and that was a big adjustment and obviously, we had challenges associated with that.

But we're still delivering in a remote environment and we're still selling in a remote environment.

So we still think that it will be kind of.

Improvements over time, but not something where youre going to see kind of just this huge surge in 1 period of time I think that we expect it to be steady improvement in demand and our ability to deliver overtime.

But as an anti crime side I should mention John anti financial crime side.

We are we're doing really well in selling our market surveillance SaaS solution to new clients still that was something we launched the beginning of 2020 and has had a really nice demand curve there in.

In terms of our trade surveillance solution, we continue to find ways to expand our client relationships and then of course on <unk>. We mentioned the fact that they are 36, new customers come in and and that business is going really well.

Okay, Great and then just a very quick follow up the.

The equity revenue capture continues to surprise me I mean this quarter again I don't know if its been as high in many years. So can you just talk about the puts and takes expectations. There I know, it's very dynamic but.

It would be helpful to understand the trends and what's the what's driving the strength. There. Thank you yeah sure I think the first thing to mention is events like the Russell and the.

The triple which in June those are 2 very large trading events that contributed to capture I think that but then in general we are basically calibrating capturing share we we.

Might do some programs to try to make sure that we do kind of drawing more order flow into the platforms going forward, so that will ebb and flow a bit but you are right. It's at its at a level that.

We're excited that we're able to provide such a great platform or the go to platform for clients and kind of the mix of the types of trading that are happening on our platform are resulting in that type of capture but as I said, we're going to do what we do always in terms of balancing kind of share and capture to make sure that we're doing the <unk>.

Thing for our clients, but also managing the business really successfully so that might ebb and flow a bit in the coming quarters.

Great. Thank you very much.

Thank you. Our next question comes from Dan Fannon with Jefferies. Your line is open.

Thanks, Good morning, my question's on corporate platforms.

Alright.

ESG is for some time as a huge growth area a large growth opportunity are looking for.

Our ESG kind of revenue contribution they've been flat.

To download the last couple of quarters. So could you, let us know what kind of lay out the growth profile from here and how we should think about.

The growth opportunity going forward.

Sure well Akshay, our IR and ESG services revenues grew 8% in the quarter and year to date are up 7%, So I would actually say that.

I'm not quite maybe you could let us know what specifically you're looking at and saying it's flat, but but generally we actually are seeing as you know that business has.

Past years has been a relatively low grower, but what we've been finding is that more demand for our IR advisory services more demand for our governance advisory services.

And more demand for the tools both.

Both in IR and ESG, just to manage their ESG reporting capabilities as well as to understand changes in investors. So.

We actually have seen it as being kind of a <unk>.

Healthy environment for that business, but maybe there's something specific you are looking at.

So just looking at slide 7 where <unk> had $56 million in revenue. This quarter 57 labs can get to 60 in the fourth quarter. Yes. So I think that we tend to look at this kind of year over year, but there are certain 1 of the things to note is that the it's.

It's a relatively cyclical business. So there are certain things that might come in at the.

At the end of the end of the year for sure tends to be a high a high quarter, but generally on a year over year basis. We look at is the 52 growing to 56.

Okay. Thank you.

Thank you. Our next question comes from Alex <unk> with Goldman Sachs. Your line is open.

Good morning, Thanks for taking the question was hoping to get your thoughts on some of the market structure developments, obviously, chairman gensler laid out a fairly ambitious agenda recently.

With respect to specifically, both the payment for order flow and the exchange rebates.

The early days still but curious to get your take on how this could be a potential opportunity maybe in some ways for Nasdaq or some things that can be more problematic.

Sure well I think the first thing is I believe that we seem to be relatively aligned at least with the overarching agenda of the of the SEC right now in terms of thinking about how do you maximize competition, how do we maximize price transparency and how do you maximize market access right so and.

Make it sure its fair.

Across both institutional investors and individual investors and so if you could kind of take that as kind of the principles that they're operating under certainly the principles. We operate under I think that as they look at all the various components of market structure.

Our view is that.

While our solutions may be slightly different our DSA re slightly different there's general alignment.

In terms of that that means things like tick size regimes also different incentive programs that might exist.

Going to be examined.

I also would say as we kind of we all know the markets are working and operating relatively well so to the extent that we think that there can be constant improvement that's absolutely the case, but but our view is it's better to try incremental iterative improvements than to try something big Bang because the law of unintended consequences are so high if you make.

Changes to incentive programs, then you have to understand what all the consequences might be from that in terms of.

Retail investors getting access to free trading and making sure at the same time that the quotes reflect the supply and the actual supply and demand in the market. So a lot of pushes and pulls so Alex I think that it is still early days.

We are certainly in active dialogue with the SEC staff as they come out with their papers will be there to comment and be a part of that debate.

But.

Our view is right now at least there is a general alignment of principles, which we think is we obviously have some optimism around.

Great and a quick follow up for Ann just around the expense guidance.

Just want to make sure that the guide that you guys updated today, it's pro forma for both EFI sale and the JV transaction later in the year.

Yes. It is.

Great. Thanks very much.

Thank you.

Thank you. Our next question comes from Michael Cyprus with Morgan Stanley. Your line is open.

Hey, good morning, Thanks for taking the question just wanted to ask about.

Dara fin I was hoping you might be able to elaborate a bit on how the revenue growth compared to net part of the business versus the underlying new customer growth I heard you mentioned about 36, new customers coming through on the <unk> side, just hoping you can elaborate a bit on the rate.

Growth rate there of new customers versus revenue and if also you could just talk a little bit about the sales strategy on the <unk> part of the business. How you see that evolving what changes have you made and how is that getting integrated within the broader Nasdaq.

Sure, Yes, I mean, I think that when it comes to the growth within <unk>, There's a really nice balanced between new logos or new clients, and then re upping and expanding relationships with existing clients. So <unk> is an interesting model. They do weekly release cycles and to enter into these multi year agreements with clients, but they are literally in the <unk>.

The system every single week, and bringing a lot of new capabilities in under the existing contract, but when they renew that contract they kind of point to all of these improvements and all the value. They have created over the prior several years and so when they do renew they tend to renew at a higher rate.

And often also a broader user base. So so when when we look at the growth of revenue. They look at new bookings and then they look at existing client renewals because those also drive revenue growth and it's actually been quite balanced.

Always has been and it continues to be quite balanced.

Both areas.

In terms of the sales strategy. They have an incredible kind of sales approach and sales discipline. They are incredibly metrics driven in kpis, driven it's amazing to see kind of how they they are very disciplined in the way that they do it they do most of their sales remotely they always have.

They always would like to be able to have conferences and other ways to meet new clients, but they have the ability to do sales successfully in a remote environment.

And they've.

Luckily that muscles quite mature so so they haven't had to make a ton of change through the pandemic and in terms of our impact on that where we've been focused is opening doors to larger clients or 2 maybe theyre trying to nurture new relationship, but they're already listed customer on Nasdaq.

So therefore, we can leverage our relationship manager to open more doors in and maybe accelerate the sales process or theyre very large banking relationships and so we can kind of get them in front of higher level executive too.

Which their services, but but there their platform itself is is a superior platform. So we feel very confident and bring them to customers and saying we know that they can do better than whatever the client has exist existing in their system and we've been.

That's the 1 area we've been collaborating on the most we have a regular meeting where we go through the pipeline.

Exactly we examine where we have relationships, where we can stretch them to go to a larger clients and then strategically how are we going to move them up the value chain and they move them over into Europe.

Yes.

Great. Thank you.

Thank you Michael.

Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.

Good morning, and thank you for taking my questions.

You mentioned that Easter Askmen and so loafers like previously you mentioned that at these 2 segments were impacted by Covid.

Given the role our sexy and strong equities market do you see an acceleration of the demand in these workforce solutions and analytics compared to maybe last quarter and last year. Thank you.

Sure Yeah, we actually have seen a really nice recovery of demand and so the reason why investment in flows were impacted by Covid was first of all and we bought <unk> right at the beginning of the pandemic. So the integration took longer than we wanted it to just because we couldnt get together and getting to know people on zoom is different thing getting to know people in the room.

<unk>.

But then also kind of thinking about the integrated platform and kind of what how do we how do we demonstrate an integrated solution to our clients that took a little bit longer to because again the integration took a little longer but now in the fourth quarter of 2020 and into 2021, youre starting to see that demand pick up.

In terms of asset owners really understanding the intersection between making an asset allocation decision and then managing their portfolio once they make that decision and we have solutions that provide and kind of bridge that so I think that we've definitely seen a nice acceleration of demand and you're seeing that in the growth numbers in first quarter and second quarter.

And we definitely are I think that we feel like also investment managers and invest in asset owners are definitely more willing to put money to work to advance their own platforms and I think that also took a little while for them to realize that they had.

Active capital markets backdrop, so, bringing these solutions can make their lives a lot more efficient.

And I think that that demand has also come back.

Got it Thats very helpful.

Quick follow up quick 1 on NPM NASDAQ private market do you expect to add more strategic partners and more bench the platform and also longer term.

Can you expand this platform to maybe international companies what are the regulations data. Thank you sure.

And over time, we will examine the idea of bringing in additional bank. Some I think that we are extremely excited about the group that we have in.

And what they can do and what they can bring just kind of really immediate value. They can provide but over time, certainly we will look at whether or not there is a value creative way to do that in terms of international there are regulations associated with that but.

But it is an area that we would say that over time, we should be able to globalize the platform.

We do bring some foreign issuers into the platform, but it's then they have to kind of go through it's a FINRA broker dealer. So they have to go through and make sure that all the institutional investors are accredited it in a way then and our registered appropriately so.

It definitely isn't completely open to as in as a global platform at this point, but it's certainly something we have on the agenda.

That's very helpful. Thank you very much.

Thank you. Our next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Great. Thanks, very much for taking my questions just first 1 on the Underfeed.

If you can talk a little bit about the opportunity you see in decentralized.

For for demand.

For Verifone services, especially in AML and other compliance functions.

Is are you seeing an opportunity.

For new business, they're incremental to when you initially did the deal.

And is that coming from.

Are you seeing that from larger institutions.

Doug obviously, you are keeping linear synergy.

Rotation towards yeah, It's a great question and yes, I think that the answer is that as we've seen a lot of change both in terms of the growth of Fintech and the emergence of <unk>, we do see that those 2 those 2 parts of the sector is being really interesting growth opportunities for <unk> <unk> has been focused on banks.

And but the fact is some fin techs have been leveraging banks in order to manage their fraud and AML.

Detection programs and so what <unk> will do is they'll put the platform into the bank than the bank will then kind of become a subcontractor to the fintech while over time I think the verifone understands that really they could become obviously a direct provider to the syntax and then that would be the case of course with the <unk> providers as well and.

I think that they have a really.

Truly a superior, particularly on fraud detection.

And in AML.

Well there is a network effect that they have because they have 2000 banks in their network that allow for them to frankly, just be better at eliminating false positives and focusing in on real potential fraud issues. So we do think that we have a chance to expand there and and Theyre very excited.

About that as a near term opportunity and it may be that we choose to prioritize that a little bit more in the near term and take a longer term view towards some of the global expansion, but right now we're.

We're frankly examining all of those elements and making sure we're prioritizing their time and attention.

Great. Thank you and then maybe just a follow up on the market structure.

Some have mentioned sub penny pricing.

Would be 1 solution to bring more volume onto listed market. Maybe just your thoughts on whether you think that would be 1 good approach to what we saw for that.

Yes, I mean, it certainly is an issue of not having a level playing field between us and dark pools and internalizers. So we certainly think it gives us an opportunity to be able to draw in more flow I think though that when you look at the internalization. There are multiple factors that drive in a retail broker to a specific internalize our and obviously.

Painful as part of that day.

The ability for Internalizers too to make good on broken trades is another area that they focus on there are a range of services that internalizers provide but but if we could make it so that I mean, the fact is they really just can't put a lot of orders into our platform. Because we don't have the ability to offer sub penny pricing and that is where theyre getting executed so.

That is that will break down a barrier, but we have to look holistically at.

The range of things that we do and what we can do to attract more of retail flow and 1.1 point is in Europe actually most retail orders actually come to the NASDAQ Nordic platform we have.

<unk> great relationships directly show so the retail brokers and they execute their trades are they placed orders in our book, they're visible and so that they get more order interaction and they are a great execution experience. So we do think that if you level. The playing field, we can compete for that order flow.

Okay, that's great color. Thank you.

Okay.

Thank you. Our next question comes from Paul <unk> with <unk>. Your line is open.

Hi, So just a few questions on the ETP.

The sponsor switches.

Just a clarification question regarding the $3 million revenue impact per quarter.

Thats solely the impact moving forward or was some of that impact already felt in the <unk> index revenues.

And then as a follow up to that historically can you remind us if there's if you've seen any sponsor.

Sponsor switches historically are.

Is this more of a 1 off event.

And then lastly will these vanguard and Blackrock decisions at all impact broader pricing decisions or pricing strategy for the index business moving forward.

I'll have Andy answer. The first question go ahead sure. So on the $3 million that I referenced at the start we haven't seen any of that impact yet.

$17 billion in assets moved at the end of the second quarter and so we would expect to see some of the $3 million impact you could think about it as maybe roughly half in the third quarter and then the full run rate in the fourth quarter.

With regard to sponsor switches in the past.

We do not.

Not something that we've seen it's really this is an unusual event and it's something that we see as kind of a 1 off type of situation.

<unk>.

I had a lot of dialogue with all of the remaining clients that we have and frankly, Blackrock and vanguard remain clients to smaller ones.

And so we feel very good about all of the partnerships, we have with our clients I think that obviously anytime a sponsor switches you do self reflection and you want to make sure that we're doing we're giving them absolutely the best service possible and so we will continue to make improvements across our business just to make sure that we are.

We're the ones they switch to and we have certainly been the ones.

Index provider that other sponsors have switched to in the past. So we feel very good about our platform, but we can always improve.

But I would say this is not something that is frequent the other thing is.

Some of the sponsors that some of those sponsors have also made other switches. So it's not we're not the only ones that they've made the decision around they've made decisions around other products as well in terms of pricing. We don't see this as a reason to examine pricing. It really has it has to do with we feel very good about the way that we price our products.

We do that based on the complexity of an index. The uniqueness of the index that types of investors are trying to attract into the index.

And what's the size and scope of the opportunity. So we will continue to do our pricing the way we always have.

Very helpful. Thank you.

Okay.

Thank you. Our next question comes from Patrick O'shaughnessy with Raymond James Your line is open.

Hey, good morning, I'm curious if you can talk about some of the previous challenges. They may have limited NASDAQ private market traction in the marketplace and then I guess along with that how do you see the long term addressable market how would you size that.

The opportunity that Youre trying to go after with this joint venture.

Great.

So challenges in the past has been.

There is a lot of them.

So 1 is just the inefficiency that exists in the system.

And as well as kind of the hesitancy in the past for private companies to offer liquidity options I think thats been frankly, the biggest impediment in the past and private companies, obviously when a when they bring an invest early stage investors they want them to be in there for a long time when they issue equity to their employees. They want their employees to be locked up for a long time. However.

Today, it's a very very vibrant environment and private companies are staying private longer and over time, they realize that unlocking liquidity is actually it can be value accretive because number 1 their employees over time, they want to buy houses and send their kids to school and be able to use our equity in ways that help manage their lives and so.

<unk> offering a fair way and in a high integrity way to offer that liquidity is really important the second and to attract talent to these days to have some sort of liquidity program as part of talent acquisition for private companies, becoming more interesting and something that you are seeing the second is that obviously getting early stage investors.

Returns and then bringing in later stage investors, who can carry the firm's overtime into the public market is highly highly interesting and so there's just been this really steady increase in corporate interest in liquidity and we have seen an acceleration of that in the last couple of years kept.

Private companies are really balancing do we go public do we stay private if we stay private how do we make sure that we have a nice liquidity capability within the company and then of course is direct listings. There is what we call. It continuous trading programs that are being developed in advance of those companies tapping the public market. So I think all of those.

As things have accelerated the interest and now it's a matter of us really bringing together the institutional community the venture community and the private company community too and our obviously, our technology capabilities and our market market know how to say, okay. How do we capitalize this into a really robust and efficient liquidity market.

<unk>.

So we see this as being just a huge opportunity in terms of the total market opportunity, it's hard to measure something that doesn't exist, but when we look at it and say what do we think where do we think the liquidity could be and what what kind of.

Revenue.

Opportunity could there be we actually size at anywhere between kind of 500 to 1.5 billion. So it's a big opportunity that we're going after and over the next 5 to 10 years.

Got it very helpful. Thank you and then my quick related follow up.

Does the current expense guidance reflect pushing the NASDAQ private market expenses into the JV.

Yes, it does.

Great. Thank you.

Thank you and we have a question from Simon clinch with Atlantic Equities. Your line is open.

Hi, Thanks for taking my question.

I wanted to follow up on the <unk> opportunity.

No just me and others.

This quarter was pretty pretty astonishing I think it was around 37% bonus or organic basis.

Which.

You've talked about in the past your ability to help accelerate the revenue great day, So I'm kind of interested in how you think about the expense side and the investment requirements.

<unk> continued.

To see this level of.

<unk> growth over the next few years.

And how you've accounted for back to in some longer term model I'm just wondering if there's if there's any.

Yes.

Any considerations, we need to think about on the profit amount in front of us.

So I would say that the.

The growth has been it continues to be I really should say quite robust and so your math seems pretty accurate.

I think that in terms of the way that we are approaching this business is we see a very long term high growth opportunity right. So the overall anti financial crime space is growing at like 17% a year, it's a huge huge opportunity $6 billion to $8 billion.

Tam or Sam frankly, not the Tam is much bigger, but the Sam is in that range and so if we invest in the platform. We are actively investing in we will continue actively to invest in the platform to make sure. We can continue the kind of growth that they are exhibiting today and so we've talked about this when.

We've actually been pretty clear as to the fact that we're not getting maximizing margin right now we're going to be maximizing growth and.

The EBITDA is.

When we talked about it upon acquisitions in the range of 25% and we expect that we will try to kind of maintain that kind of margin, while we're growing as fast as we can but over time, obviously as the space matures, we have but there certainly is way or ways that we can scale. It but right now we're going to maintain that growth mode and still be able to deliver really.

Bottom line.

Wrote in a high growth business to our shareholders.

Okay.

And just as a follow up.

In terms of your capacity full.

On your capital for that.

Organic opportunities.

Could you talk about where.

Where do you feel you've got the most capacity both financially and also.

Arsenal perspective.

I'll just add.

So execute on deals.

Well in terms of.

Yeah, So I think thats the way that we look at it from a disciplined perspective, a capital discipline perspective, as we've said for we are an investment grade company and we generally seek to maintain our investment grade status.

And at the same time, we want to make sure that we have the opportunity to capture.

New growth and expansion opportunities with some areas of particular focus 1 is in.

The anti financial crime space. The second is in the investment so low this kind of space in terms of asset owner asset management workflow solutions I'm, particularly focused on the private market. There and then the third is in ESG, but we also do look at things that are in corporate services like <unk> is a marketplace that really serves corporates for carbon.

Removals.

We continue to find ways that we want to serve our corporate clients in our marketplace.

Our solutions and so we will always.

We look holistically at acquisition opportunities.

We have these 3 focus areas that I mentioned, but I also would say that we are incredibly focused on our organic growth and I think we're delivering really strong growth and we want to continue to deliver really strong growth.

For our clients and our shareholders through our organic means but when we look at acquisitions, we have focus areas that I mentioned.

Perfect. Thanks, Alex.

Sure.

Okay, well I think that we're going to close it out. So thank you very much for your time today and we're really pleased to see that our business is delivering strong revenue growth for the quarter and for the year.

Guided by our strategic direction, we have a clear focus for the remainder of 2021, as we and <unk> market to realize the potential of tomorrow and I look forward to updating you all on our progress in the months to come so thank you and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

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