Q4 2021 Nasdaq Inc Earnings Call
Good day, and thank you for standing by and welcome to the NASDA Q4 th quarter 2021 results conference call.
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I'd now like to hand, the conference over to your host today, Ed Dickmeyer Senior Vice President of Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining us today to discuss nasdaq's fourth quarter and full year 2021 financial results on a line or a Dana Freedman, our CEO and Dennis <unk>, our CFO , John Zecca, our chief legal and regulatory officer and other members of the management team. After prepared remarks, we'll open up the lines for Q&A. This press release and presentation are on our <unk>.
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 <unk>.
Private Securities Litigation Reform Act of $19 95, actual results may differ materially from these projections and 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'll now turn the call over to Dana.
Thank you Ed and good morning, everyone and thank you for joining US let me first note how proud I am of the resilience of Nasdaq's business, the nimbleness and dedication of our global team and the trusted relationships. We have with our clients. We are certainly familiar with how unpredictable today's operating environment can be as we continue to navigate a dynamic pandemic and.
Landscape before I turn to our performance I would briefly like to address the current market environment.
While the markets have experienced increased levels of volatility since the start of the year, we maintain a positive overall economic outlook going into 2022 as the underlying economy continues to have the ingredients for continued growth notably.
Notably consumer demand for products and services remains high the ongoing digital transformation of industry continues to drive long term demand for advanced software and other technology and market innovations and the resulting employment environment is very strong.
There are several factors driving the current market volatility, notably due to the cyclical and structural issues. We're entering 2022 with a tight labor market and supply chain challenges both of which are contributing to inflationary pressures.
These pressures are then creating uncertainty around the pace and rate of monetary policy adjustment.
Additionally, there are broader geopolitical challenges and continued pandemic impacts that are adding to the macro uncertainty.
Overall, while our overall outlook remains positive we expect the confluence of market driven factors and macroeconomic and political factors to continue to drive volatility over the near term.
Within that context, we also remain confident in the strength and resilience of our business for.
For example, we've seen significantly higher trading volumes and within the last week, the industry processed and NASDAQ process, a new record number of messages in a single trading day.
We continue to have a healthy pipeline of companies expecting to tap the public markets. During 2022 and in fact, we have more than doubled the number of <unk> on file with the SEC compared to the prior year period, although market volatility could cause some delays some delays the IPO timing something we're monitoring closely.
And then there are in the index business, we expect index asset values to experience some impact associated with various market levels and investor appetite for products tracking our indexes, but also the benefit from higher futures trading volume due to the use of our core indexes in market hedging strategies.
The diversification of our business over the past number of years has created a flywheel effect between our foundational U S and Europe European marketplaces, and the technology solutions, we deliver to thousands of clients across public companies investment managers and banks as well as the 100 plus market infrastructure operators all of whom rely.
Our mission critical software to navigate the financial system successfully.
This is especially the case during these periods of heightened market turbulence.
We help asset owners rebalanced their portfolios and manage asset allocation decisions, we enable banks and brokers to prevent financial crime, while handling increased investor activity, we provide critical investor relations insights to corporate clients to understand changes in their investor base, and we empower exchanges around the world to handle the market volumes and volatility.
<unk>.
NASDAQ has bear as a critical partner across the financial markets and our business has demonstrated time and again that we can achieve success in the face of these types of backdrop I am confident this time will be no different.
Let's now turn to our results my remarks today will focus on the following areas Nasdaq's full year 2021, and fourth quarter 2001, 2021 financial and business performance. The progress we've made to drive NASDAQ forward, along our strategic direction and an update on nasdaq's cloud journey as well as our ambitions for 2020.
Two and beyond.
I will then turn the call over to Ann who will provide further update details about our results as well as give updates on our guidance capital deployment and sustainability efforts before we move to Q&A.
Let's begin with our results I'm very pleased to report Nasdaq's strong financial performance for the fourth quarter and full year of 2021.
First on the fourth quarter, we achieved $885 million and net revenues, a 12% increase compared to the prior year period, while non-GAAP earnings per share of $1 93 rose, 21% compared to the fourth quarter of 2000 22020 for the full year of 2021 net revenues of $3 4 billion increased 18% from the prior year.
Here, we achieved 14% organic growth with double digit contributions from both the solutions segments and market services.
Our annualized recurring revenue or <unk>.
Ended the year at $1 87 billion, an increase of 19% year over year. This underscores our continued progress across key secular growth opportunities, including building out our anti financial crime crime technology, as well as our analytics and workflow solutions for asset owners.
Within our recurring revenue businesses, we see some of our best performances from our SaaS based solutions annualized SaaS revenues totaled $640 million in the fourth quarter of 2021, representing a 34%.
Sorry, representing 34% of total company IRR.
Sorry up from 28% in the fourth quarter of 2020.
43% year over year increase in annualized SaaS revenues, primarily reflects the inclusion of <unk> as well as strong organic growth in our market surveillance and investment analytics businesses.
Because of our 2021 performance, we enter 2022 with solid momentum and we intend to lean in to our success as we operate our advanced client led technology solutions and our foundational marketplace businesses diligently in the months ahead now.
Now I'm going to turn to specific highlights from our businesses focusing mainly on fourth quarter results.
Our solutions segments businesses delivered a combined total revenues of $581 million during the fourth quarter and 19% increase from the prior year period, driven most notably by standout performances from index and listing services exciting momentum in our investment analytics offerings and strong performance in our anti <unk>.
Crime offerings, including the impact of the acquisition of Erickson.
And our investment intelligence segment, we delivered $288 million in total net revenues in the fourth quarter, an 18% increase from the prior year period with contributions from across the business.
We continue to invest in product innovation to meet the evolving needs of our clients during the quarter, we brought to market several new products that are seeing encouraging initial demand.
Let me highlight a few.
Data fabric, which is our new enhanced cloud based offering is a powerful new feature inside of NASDAQ data link that allows clients to bring their own data to the platform and have it securely managed as a service.
The early traction we observed with data fabric is encouraging and this offering is quickly becoming a critical part of our clients' investment workflows.
And in our index franchise, we saw demand growth for the new offerings, and our expanded NASDA Q1 00 related and ESG focus indexes, including two new sustainability focused ETF tracking the NASDA Q1 00, ESG and the NASDAQ next Gen 100 ESG indexes.
In total 61, Etfs tracking NASDAQ indexes launched in 2021, accumulating $2 $9 billion in assets through the end of the fourth quarter, notably 67% of ETF launches in the year were outside the U S. Derma.
Demonstrating the strong international demand for Nasdaq's Index franchise.
Turning to investment analytics building upon our successful partnerships with leading investment consultants that were announced during 2021 Nasdaq's asset owner solutions now distributes investment research and insights from Mercer and among.
Among others to our growing community of asset owners and asset managers on the investment platform.
This is just one of several ways, we're increasing the evaluation of investment and the broader an asset.
Asset owner solutions offering to our clients and I'm incredibly pleased to see the tremendous sales growth from new clients reported by investment and <unk> for the full year of 2021 combined new sales in 2021 totaled $26 million, an increase of 41% over the prior year driven in large part by 79% new sales.
Growth in asset owner in the asset owner business and <unk>, New sales grew 145% across all client groups.
Turning next to our market technology segment, we delivered $131 million in total net revenues in the fourth quarter of 24% increase from the prior year period.
This was primarily driven by the inclusion of revenues from <unk> in our results.
More broadly we saw continued growth in demand for our SaaS based offerings, both fraud detection and anti money laundering solutions, which we call <unk> and <unk> and from the market and trade surveillance areas of anti <unk> anti financial crime technology as well as a growing number of market operators utilizing our cloud native marketplace solutions.
Over the course of 2021 I am pleased to report that in addition to 197, new banks credit unions and Fintech companies that adopted <unk> are other market technology businesses welcomed 31, new customers of which 26 shows our SaaS solutions.
So market technology overall had a transformational year in 2021 in particular as we grow NASDAQ into an anti financial crime leader with related shifts in revenue composition, we have an equal focus on capitalizing of recovery in the growth of our solutions business for our market infrastructure operators.
Mark revenues recognized in that business decreased in the fourth quarter on a year over year basis due to factors, including low lower nonrecurring professional services revenue caused in part by pandemic related logistical challenge that we've previously disclosed.
However, we're seeing some encouraging trends that bring us incrementally closer to a positive inflection in revenue.
First we're making progress on some of the larger more complex implementations that have been more exposed to the pandemic related travel challenges of travel and restrictions to onsite collaborations in particular two key projects are approaching their first go live and acceptance phases in the first quarter of 2022, and then a third the collaboration.
With the client resulted in its scope and timeline adjusted to reflect both expanding customer needs balanced against evolving delivery timeline realities.
Second in the fourth quarter of 2021, we achieved strong new order intake of $142 million capping a record full year of $378 million, excluding <unk>, which constitutes a very substantial 58% increase in new order intake from a 2020 that was highly impacted by the <unk>.
<unk> of the pandemic.
Further we have seen a substantial uptick in early stage discussions with clients, who want to learn more about our progress, bringing the benefits of the cloud and managed services to.
Their own markets.
We are excited to see how they can how that can play out not only in driving further growth in new contracts down the line, but also because SaaS and managed service projects until simpler delivery processes versus our legacy on premises installation.
Obviously, the duration of the pandemic has exceeded everyone's expectations. However, we are encouraged by the growing interest in our next gen capabilities and the future opportunities to increase the way we serve market infrastructure operators to complement the strong growth that we see today in our larger anti financial crime offerings.
Moving to our foundational marketplace businesses, our market services segment delivered net revenues of $303 million during the fourth quarter of 2021, an increase of 5% from the prior year period, we maintained our strong competitive performance amidst a dynamic trading backdrop as the retail and institutional investment community found new opportunities.
<unk> across equities and options to drive their strategies.
Our U S options business set a new annual record for trading volumes in 2021, and we are starting 2022 with new records being set in volumes and message traffic.
In early December we announced our decision to begin the migration of our options markets to the cloud beginning in 2022, starting with our NASDAQ <unk> options market.
This innovation and the infrastructure that underpins our markets will create more elasticity in our capacity, while maintaining or improving the performance of our clients that our clients have come to expect from us.
This is this will be made possible with the build out of the broader cloud infrastructure within the Carteret data center supported by AWS and our local partner Equinix.
I will cover this topic in more details in a few minutes.
Turning to U S cash equities, the increase of our volumes as compared to the fourth quarter of 2020 mirrored the industry volume increase at approximately 3% and in the Nordic markets. We continued to experience strong trading performance, including a matched equity market share among lit venues of over 75% the European equities valued.
Traded per day also increased 23% in the fourth quarter versus the prior year.
Finally, our corporate platform segment delivered net revenues of $162 million in the fourth quarter, a 17% increase.
And primarily by our continued leadership in new listings across our U S and European markets as well as growth in demand for our complementary IR and ESG services.
For the ninth consecutive year, NASDAQ led U S exchanges for Ipos in 2021 with 752 capitalizing on one of the strongest years for new issuances over the last two decades and with a 73% overall IPO win rate.
NASDAQ also ranked number one in the U S. In terms of IPO capital raise for the third quarter with.
Oh Im sorry for the third year. So let me read that again NASDAQ also ranked number one in the U S. In terms of IPO capital raised for the third year with $181 billion and listed nine of the top 10 U S based ipos in terms of proceeds raised.
We also had 33 new companies switched their corporate listings to NASDAQ in 2021, including Honeywell, Palo Alto networks, and Baker Hughes, representing an aggregate $361 billion in global equity market capitalization.
The total market value of all companies transferring to NASDAQ in the last decade has exceeded one seven trillion.
In Europe , our Nordic Baltic and first North exchanges also experienced a record year for new listings with 207 companies raising over $15 billion and.
And for the first time ever NASDAQ Stockholm facilitated more capital raised in any other country in the EU, while our combined Nordic exchanges had more ipos than any other market operator in Europe .
Demand for our IR intelligence and governance solutions drove 4% year over year revenue growth for the fourth quarter within the IR and ESG business.
We continue to see deepened client engagement across NASDAQ IR insight and advisory and have also invested in the expansion of our ESG advisory and reporting services to corporate clients.
We now provide the services in our portfolio solutions offered to companies who list on our U S market.
Next I'd like to provide an update on the important progress we made in 2021 to advance our cloud journey and how these milestones support our broader strategic vision to unlock potential growth at <unk>.
Both potential sorry, and accelerate our transition to a SaaS business model and our technology data and investment analytics businesses.
Our move to the cloud began over a decade ago and we have used it it's innovation capabilities to deliver client driven solutions, while evolving our own infrastructure for a digital future in fact, a wide range of Nasdaq's solutions are already in the cloud today.
We have also advanced our market's ecosystem by migrating several of our markets surrounding systems that have greatly benefited from the hyper scaling that'd be cloud affords us to manage elevated volumes in the world's markets.
We were therefore very excited to announce in December a multiyear partnership with Amazon Web services to build the next generation of cloud enabled infrastructure for the world's capital markets committing to move one of our markets to the cloud this year.
Our partnership with AWS will accelerate the migration of our North American market to the cloud through a phased approach specifically this year, we plan to move our <unk> options market to our next generation trading technology and as part of that migration. We also plan to move <unk> into Aws's cloud environment within the Carteret data Center.
The new edge computing solutions that we co designed with AWS may also be used by other market infrastructure operators and Mark participants to move their trading systems to the cloud and we look forward to engaging with our market technology clients on this future oriented approach to managing market infrastructure and.
In addition, the partnership will include opportunities to explore new ways to leverage AWS as cloud capabilities across nasdaq's anti financial crime data and investment analytics as well as our market infrastructure software businesses.
Now as I mentioned at the beginning of my remarks today NASDAQ made notable progress against our broader strategic journey in 2021, as we continue that path, we would like to share our core ambitions and execution priorities for 2022 and beyond which we detail on page 10 of the presentation.
First we want to reinforce a culture of inclusive growth and prosperity within our own organization.
We want to continue increasing collaboration across our entire enterprise to deliver more.
More more through our deep client relationships to further increase our value proposition as an employer and to continue to advance our sustainability practices.
Second we want to advance our client first approach to serving the financial ecosystem.
We will continue to deliver our core marketplace solutions with superior client service utmost integrity and technological excellence. We will also continue to listen to our clients' needs as we expand our offerings in index investment analytics anti financial crime and ESG solutions.
Third we are accelerating our technology modernization or AWS partnership and how we are marching forward on the cloud is an incredible example of this but we have additional opportunities to increasingly leverage machine learning machine learning within our offerings as well as our agile development within more of our innovation areas. We.
We look forward to updating you on our progress on these ambitions in the quarters to come.
As I wrap up I will summarize by saying our fourth quarter produced solid results for NASDAQ completing a very successful 2021 for our company.
We remain relentlessly focused on advancing our strategic position as a technology company that is advancing the financial system as we move forward into 2022 capitalizing on the strong momentum generated last year.
With that I'll now turn the call over to Ann to review our financial details.
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 our file located in the financials section of our Investor Relations website at IR Dot.
<unk> Dot com.
I'll start by reviewing fourth quarter performance beginning on slide 12 of the presentation the.
The 12% increase in reported net revenue of $885 million is a net result of organic.
Organic growth of 10%, including 12% organic increase in the solutions segment, and a 6% organic increase in market services.
And the contribution from <unk> as well as the impact from divestitures, partially offset by the negative impact from changes in FX rates.
Moving to operating profit and margins non-GAAP operating income increased 18%, while the non-GAAP operating margin of 51% increased three percentage points compared to the prior year period.
non-GAAP net income attributable to NASDAQ for the fourth quarter of 2021 was $328 million or $1 93 per diluted share compared to $268 million or $1 60 per diluted share in the prior year period.
Turning to slide 13, as Dino mentioned earlier annualized recurring revenue or <unk> totaled $1 87 billion.
An increase of 19% from the prior year period, while annualized SaaS revenues totaled $640 million an increase of 43%.
Excluding the impact of <unk> increased 9% year over year.
I will now review quarterly segment results on slides 14 through 17.
Starting with market technology revenue increased $25 million or 24%. The increase reflects the positive $35 million impact from the acquisition of <unk> and a $3 million increase in our existing anti financial crime technology business, partially offset by an organic revenue decline of $10 million and our.
<unk> infrastructure technology business excluding.
Excluding a $4 million purchase price adjustment on deferred revenue associated with the closing of the American transaction paraffin revenues would have been $39 million in the fourth quarter, an increase of 30% year over year in anti financial crime technology would have been $76 million with both our existing surveillance and <unk> pharma solutions.
<unk> to exhibit strong momentum.
On a sequential basis and excluding the impacts of the purchase price adjustment on deferred revenue <unk> revenues of $39 million in the fourth quarter compares to $36 million in the third quarter.
As we discussed last quarter the revenue decline within the market infrastructure technology business was impacted primarily by the successful completion of mid mid year of a significant long term maintenance and support licensing contract with a customer who will continue to use our technology.
As well as decrease more broadly and change request and installation revenues.
Due to capacity constraints, we're working through as a result of logistical.
Implications of the pandemic.
That said as Edina discussed a few minutes ago, we see some encouraging signs, including the $142 million of order intake during the quarter.
<unk> for market technology was $428 million in the fourth quarter of 2021, an increase of 51% compared to the prior year.
The market technology segment operating margin was 15% in the period and increased compared to the prior year quarter, primarily due to a 25 million reserve related to an unexpected loss on an implementation project taken in the fourth quarter of 2020, excluding the impact of the previously mentioned $4 million purchase price adjustment.
<unk> the operating margin would have been 18% in the fourth quarter of 2021.
Investment intelligence revenue increased $43 million or 18%, reflecting organic revenue growth of $44 million.
Organic revenue growth during the period reflects very strong growth in our index business as well as a meaningful contribution from analytics.
<unk> was $567 million, an increase of 10% compared to the prior year period.
AUM and Etp's licensed to NASDAQ indices rose, 18% compared to the prior year period to $424 billion.
Including 74 billion from net inflows and an $83 billion net increase from market appreciation, partially offset by $92 billion in net negative impact related to the ETP sponsors switches that we have discussed earlier in 2021.
The investment intelligence segment operating margin of 64% is down one percentage point compared to the prior year period as we continue to make strategic investments in index and analytics to support sustained growth.
One note looking forward to the first quarter of 2022 trading activity of instruments licensed to our index is achieved certain annual thresholds mid year that resulted in an increase in licensing economics in the second half of the year.
Similar to what we described in the call one year ago as we begin 2022, the economics of certain agreements reset for the new year. We estimate that this will lead to approximately $7 million of lower revenue in the first quarter of 2022 compared to the fourth quarter of 2021, assuming similar trading activity and product mix and the two.
Period.
Corporate platforms revenues increased $23 million or 17%, reflecting organic growth.
The increase was primarily driven by higher U S listings revenues due to the 23% expansion in our listed corporate issuer base, primarily due to a higher number of ipos as well as higher adoption across the breadth of investor relations and newer ESG and reporting offering CT.
Corporate platforms, <unk> was $546 million and increased 16% compared to the prior year period.
The corporate platform segment operating margin of 37% increased <unk> seven percentage points compared to the prior year period, primarily driven by the continued increase in the listed issuer base.
Market services, net revenues increased $15 million or 5% the organic revenue increase was $17 million or 6% and there was a $2 million negative impact from changes in FX rates.
The organic increase primarily reflects higher equity derivatives and trade management services revenues.
The segment operating margin of 61% was unchanged from the prior year period.
Turning to page 18 to review both expenses and guidance.
non-GAAP operating expenses increased $28 million to $430 million, the increase reflects a $6 million or 1% organic increase and a $24 million increase from the net impact of the acquisitions and divestitures, partially offset by a $2 million decrease from the impact of changes in.
FX rates due to a stronger U S dollar.
Excluding the 25 million reserve in the market technology segment taken in the fourth quarter of 2022 organic expense increase totaled <unk>, 8%.
The organic expense increase is two main drivers first higher compensation expense, reflecting our continued investment to drive growth as well as an increase in variable performance linked compensation due to our outstanding results and second marketing and advertising expense driven by higher level of new listing active.
<unk>.
We are initiating our 2022 non-GAAP operating expense guidance to a range of $1 68 billion to $1 $76 billion the expense guidance range at the midpoint has three components.
First our core increase compared to 2021 at approximately the midpoint of our medium term expense growth objective of 3% to 6%. The majority of which is being allocated to our highest growth product areas and I think crime index analytics and ESG.
<unk> is a roughly 2% additional increase reflecting certain shorter term factors, including costs related to the heightened competition for talent in today's market and inflationary pressures as well as some budgeted rebounding costs associated with the return to office and travel and entertainment.
Third there is also the full year impact of the 2021 M&A activity and the impact of changes in foreign exchange rates, which together net to a decrease of under 1%.
Our expense philosophy and budget is driven by our strong growth opportunities and our willingness to invest to properly support execution against them and as a Dino went over earlier in her remarks, our positioning versus these large and growing opportunities has never been better.
We expect the 2022 non-GAAP tax rate to be in the range of 24% to 26%.
Turning to slide 19 that decreased by $97 million versus <unk> 21, primarily due to a net payment of $60 million of commercial paper and a $39 million decrease in eurobond book values caused by a weaker euro.
Our total debt to trailing 12 months non-GAAP EBITDA ratio ended the period at three one times down from three two times in the third quarter of 2021.
Let me take a moment now to update you on stock repurchases during the fourth quarter of 2021. In addition to retiring 4 million shares of stock representing the final 20% of the $475 million accelerated share repurchase share repurchase program or ASR agreement, we entered into in July of <unk>.
'twenty one the company also repurchased an additional 58.
And shares in <unk> 'twenty one.
Moving to the first quarter of 2022, thus far in January we have repurchased $142 million in stock and later this week, we plan to execute a second ASR for $325 million, which we expect to fully complete in the first quarter of 2022.
These repurchase plans are consistent with our desire as part of our capital plan to maintain a stable share count and with our intention to materially offset the dilutive impacts of the NFIB divestiture beyond the first 12 months of that transaction closing.
Turning to slide 20, I wanted to touch on Nasdaq's unique set of opportunities in terms of our sustainability and external impact and the strong momentum we have in executing against them.
In terms of what makes our ESG opportunities unique we're committed to the highest level of sustainability in terms of how we run our businesses and serve all of our stakeholders.
We have also positioned ourselves to deliver high impact outside the organization through our <unk>.
<unk> been prime solutions, and ESG products and services, our position as a marketplace operator to advanced standard standards and practices and our efforts to further financial inclusion through focused charitable activities and volunteerism.
As we look back at 2021, we have made significant progress across all pillars of ESG, we meaningfully expanded our disclosures in commitments, including our first ever task force on climate related financial disclosures report.
We enhanced our suppliers sustainability program received SEC approval on our board diversity rule and added Bureau, or <unk>, a provider of carbon removal solutions to our growing suite of ESG product offerings.
We are pleased to see several third party ESG research and ratings firms recognize our meaningful progress over the year, including sustain Olympics ISS CDP. The Dow Jones sustainability index, the human rights equality index and that just capital ranking of 100 companies.
<unk> critical business behaved, who prioritize critical business behaviors.
We're also moving farther in 2022 earlier this month <unk> announced its partnership with tribe Freedom Foundation, a charity focused on fighting human trafficking and modern slavery, NASDAQ will support tribe and the accretion of a survivor financial empowerment program, a centralized portal, including content practical.
<unk> and educational financial literacy materials tailored to support survivors of human trafficking.
We look forward to updating you on a regular basis as we progress our ESG initiatives going forward. Thank you for your time and I'll turn it back over to the operator for Q&A.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone to withdraw your question press the pound key.
In the interest of time, we ask that you limit yourself to one question then rejoin the queue for any additional questions.
Our first question comes from Rich Repetto with Piper Sandler.
Yes.
Dana Good morning Ann.
Congrats.
First congrats on the AWS.
Partnership because.
Just shows.
Market trends continue to move in your favor, which is by no means a accident I don't put to you.
But anyway.
I got a question.
This technology focus I got a question on market technology Youre going to kill me for this question, but.
We've had a record quarter revenue increased 15%.
Order intake increased from SaaS gross margin expanded.
<unk> stayed flat quarter to quarter it was the only.
Segment with.
Our did stay flat so.
Can you give us some insight into the incremental I guess revenue composition.
And the pickup in the in the revenues in market technology.
Well first of all rich we welcome all of your questions. So thank you for that and thanks for that I mentioned on AWS and is going to go ahead and give you some color on that sure. So thanks for the question rich.
We were flat in IRR for market Tech overall, and so there's a couple of different pieces to it but I would say is where we saw growth in the anti financial crime portion of IRR and some slight decline in the market infrastructure technology piece of IRR as we had a contract that was there was a <unk>.
<unk> contract that we were serving our client in transition that rolled off so very minor thing there.
What we're also seeing when you see the revenue growth in the market technology business.
Lot of that growth is in this quarter is coming from additional change requests and the seasonal type items, we see in the fourth quarter those things don't contribute to IRR, but I will want to just point on the positive side that we had a very strong order intake quarter in the fourth quarter and also a record order intake number for the year.
And Mark.
Place infrastructure Tech and so we think about the future, while we wont see that coming into <unk> right away because there is an implementation phase in many of those projects, we will see the benefits in <unk> overtime and.
And I think one other piece of color on the order intake for the year when we look at it well more than 50% of the order intake is from either expansions of our <unk>.
Relationships with existing clients or from new clients. So it's a net new revenue opportunity for us as we execute against those contracts.
Yes.
The positive thing is you've got to focus on <unk>.
I agree that's a great thing thank you.
Alright. Thanks.
Our.
Next question comes from Alex Kramm with UBS.
Yeah, Hey, good morning, everyone.
Just wanted to talk about the 2022 outlook a little bit more in terms of organic growth. I know you have your medium term guide here, 6% to 9% starting this year, obviously last year was great.
And I know some of the things that impact that number like the index business. Obviously, you had a bad start to the year I think AUM is down 12% or so year to date, if I. If my numbers are right.
I think even with that and looking at some of the exit rates and some of the other businesses that six to nine seems fairly safe. So I was just wondering if you could give us any commentary on how you feel about that 6% to nine for fiscal year 'twenty two.
And just any other color would be great. Thanks, Okay, great. Thanks, Hey, Alex.
So first of all we continue to support our medium term long term outlook on our solution segment revenues in terms of the outlook that we provided you around that 6%, 9% I think that.
All of the businesses have slightly different dynamics, but the one thing I would agree with you on is that the entry rate for those businesses is quite strong. So we had a really strong end to 2021, which then of course with our annual recurring revenue it kind of portends to a strong entry rate for for 2022, but as we look at kind of the long.
Medium to long term trends of the business, we continue to support that 6% to 9% and as we continue to perform and execute and grow and expand their businesses like we did when we announced the <unk> deal. We will we will certainly make the appropriate adjustments, there, but but I think Alex that.
As you know it's always it's a very dynamic environment. So we feel we feel very comfortable with that outlook and we will see how we execute against that this year.
Fantastic. Thank you.
Our next question comes from Dan Fannon with Jefferies.
Thanks. Good morning wanted to also talk about just kind of the outlook for market services and understanding that volumes are going to be.
See what they are but thinking about capture rates within both options and equities.
That's because of mix.
Or any competitive factors, how youre thinking about those into 2022.
Yes, you actually pointed out a lot of.
Key contributors stand so capture is really is definitely mix mixes.
A big role in that the types of.
The types of instruments that are also more heavily traded in any given period of time and then.
<unk> also deliberate actions that we might want to take in order to attract certain volumes into our markets from a competitive perspective so.
As you know with with more retail, particularly in options just to point out.
And more and heavier volumes in what I'll call the price time market and options during turbulent times those those venues carry with them a lower capture whereas our in our <unk> and our ISC marketplaces that have support more complex transactions have a higher capture so so.
So anytime where you see more retail and more volumes coming in.
Two the price time venues youre going to see capture change, but then at the same time, we do try to manage our capture quite actively in terms of attracting certain order flow into our market stand so that.
There's a lot of a lot of dynamics underpinning that but what we look at is the mix of capture and market share and volumes to try to make sure. We're optimizing the results for our shareholders and I think we've done an excellent job of that.
Really maintaining I think a really strong marketplace across all of our businesses.
All of our markets and a highly competitive time for the marketplace.
Great. Thank you.
Our next question comes from Owen Lau with Oppenheimer.
Good morning, and thank you for taking my question.
About your partnership with AWS when people saw this new news about this partnership I think many of them.
And this partnership from the cost perspective.
But could you please explain a little bit more about like if you have any example.
So Andy rest of new opportunities.
Did you mention.
The migration I think option market first and then Youll target over the next 12 months, but could you. Please talk about the pace of when do you expect to complete all of the migrations. Thank you sure.
So yes, our AWS partnership actually I think is really unique because there are a few things first of all we do have a lot of our technology services today that are already cloud based in an AWS and also in Azure and so we have already have I think a lot of experience in working in the cloud.
So as we start to really focus in on the marketplace businesses.
And we start to bring our markets into the cloud environment I think we're doing it in a really really thoughtful way, but whats really cool.
Well I think cool and unique about the relationship that we've developed here is that we're bringing AWS into the Carteret data Center and then Equinix has has committed to expanding the data center very significantly we are doubling size of the data center doubling the power into the data centers. So as we create this kind of this private the private.
Local zone for AWS in Carteret number one it makes it much easier for our clients to migrate to the cloud environment that theyre going to create inside the data center and number two it gives us more space more power to offer additional services to our clients and to give our clients a chance actually to bring more of their <unk>.
Surrounding systems more of their trading systems into a cloud environment, but in a very controlled way. So it gives us expansion opportunities within carteret and ways to expand our client relationships. There and then with some with the go to market plans that we have with AWS with our market technology clients around the world.
Private local zone construct.
And the ultra low latency edge compute system that we've co designed with them. We can then deploy that to other major markets around the world and help them with their cloud journeys and that gives us a chance to be more of a number one to deploy our cloud cloud based marketplace solutions, which we also are implementing for MRI and then number two two.
To become more of a managed service provider.
Our market Tech clients, which then.
Built a bigger relationship with them that accrues to our benefit so a lot of revenue opportunity there in the coming years.
I just wanted to say these are all long term kind of think about the datacenter for instance, it's going to take a couple of years to build out the data center. It will take some time for us to deploy our cloud solutions to our market tech clients, but we see a really nice medium to long term.
<unk> that we can have with AWS on that in terms of our own markets and moving our markets. We are starting with <unk> in 2022, we want to gain some experience with it we want to hear from our clients as we as we manage the migration complete it and then we will set up.
More of a targeted timeline for how we will continue the migration of our markets in the U S. But I just I want to say, we want to start with the first one before we commit to a very specific schedule for the rest.
Got it thank you.
Our next question comes from Alex <unk> with Goldman Sachs.
Great. Good morning, Thanks for taking the question I had a follow up with respect to the market Tech business.
Particularly the comment around the order intake.
<unk>, 50% plus expansion with existing clients and new clients encouraging.
Can we get the breakdown between the infrastructure business and then the financial crime services business within that and then to your point around accelerating momentum in some of the conversations you're seeing I mean for Turkey side can.
Can you help contextualize that a little more in terms of what that means for revenue growth for 2022 and that part of the model.
Sure Yes.
First of all the order intake numbers that we provide still do not include <unk>. So its only includes our trade and market surveillance business. In addition to the.
The market infrastructure, operator business and I just wanted to say that the majority of the I would say the large majority of order intake is related to our market infrastructure operator clients because of the fact that they tend to be longer term contracts are trade and market surveillance contracts tend to be shorter in duration and smaller in size. So so.
I think that you should assume that the large majority of <unk> is related to market infrastructure operators.
And you are saying $20 million, a 10% $28 million, so about $20 million a day of the order intake is related to our.
Our market and trade surveillance business just to give you a sense of the size in terms of the.
In terms of as we look into 2022 I think it's important to note a few things and mentioned the fact that in the latter half of last year, we had a long standing client who.
<unk> continued to license our software, but it was always planned that they would come off our service and maintenance agreement, which is on a recurring revenue part of the contract.
So that happened in the us in the second half of last year I think in the third quarter, we announced that that has to flow through the full year. So that will impact. The first half of 2022. Then we also have two of our larger implementations going live with their first phase in the first half of 2022, which obviously gets US then into.
Different and stronger revenue mode with them going into the latter half of 2022 and then we have this big set.
Set of new order intake that we took in during 2021 and that will take a while for that to flow into the revenue as we complete the implementations of that so so you should assume that youre going to see more momentum as we go through the year of 2022, and digest that order intake as well as turned some of our clients into.
Production clients and get through that full year impact from that one contract. So I think you should just assume more momentum going through the latter half of the year.
Okay.
Got it thanks very much.
Our next question comes from Craig Siegenthaler with Bank of America.
Thank you good morning, everyone.
Morning.
So I'd a follow up on market technology, but I want to isolate it around <unk> and I. Appreciate <unk> comments that revenues are still growing quickly at 30% year over year, but as you leverage the network effect of Nasdaq's tier one and tier two financial services relationships do you expect this revenue growth rate to remain.
Robust or could there be some deceleration just as the larger revenue base.
FX it through the law of large numbers.
Well I mean, we continue to see massive opportunity for the <unk> organization in three areas. One is as you mentioned moving up to the larger banks and we are we have signed some some really great clients getting into some of the tier one and tier two banks and we actually have several POC is running with some.
The largest banks as theyre looking at our front, our fraud solutions and really trying to evaluate that so those sales cycles are longer but obviously the contracts are bigger. So so we definitely see a lot of momentum there. The second is as we look at global expansion going into Europe . We do have one client that is fully live and working with.
US and we're building out our pipeline now to help support more clients in Europe , and making sure our solutions are geared towards the European landscape and so that's an area of focus for us, but that if that door open as well and we execute well there. That's just a huge growth area for us over the long term and then the third is actually in the digital assets.
We actually are coming out and we've been.
In a beta mode with a solution that is geared towards providing traditional banks, who want to offer digital wallets to their clients as well as vast who need really stronger anti financial crime solutions with <unk>.
With specific solutions that are geared towards the digital asset ecosystem and we plan to launch that more fulsome fully this quarter.
We also see as a big growth runway for US in addition to a fintech. So I would have to say if anything it's there's so many great avenues for growth and these avenues are long term in nature in terms of the growth opportunity that we are very excited to continue the momentum of the <unk> business the product is super.
<unk> and I think it's proving itself out really well.
Thank you Dana.
Yes.
Our next question comes from Kyle Voigt with <unk>.
Hi, good morning.
And you mentioned some inflationary pressures being felt.
Those are short term just wondering if you could speak about those pressures and a bit more detail is that entirely going to be felt in wages are there other areas to note.
And looking forward to 2023, I guess why are you comfortable that this 2% increase as more of a one off item.
And then lastly, sorry for the multipart question.
We're seeing more of the modest inflation on the expense side are there any opportunities we could pass along some of those inflationary pressures and take more price on the topline side. Thank you.
It's going to go ahead on the cost side. So on the cost side. So we talked about the incremental 2% within the expenses, maybe one 5%, we see that as being inflationary pressure most of that is on the wage side I do think that there is there is some inflationary pressure across our supplier.
Contracts, which we'll manage through but the but the vast majority is on the on the on the wage side and as we think about managing through that.
Our ultimate goal here is attracting and retaining the best talent to continue to support the long term growth of the business and so what.
While we see the pressure.
Right now here being short term in nature, we would expect to continue to invest over the long term.
Against those against those needs.
I think I think it's important to recognize it's hard to know what the world can be like in 2023, but in 2022 right. Now we are we're frankly, managing our talent really well I think our our attrition has stayed very consistent to our historical expectations, but at the same time, where it is a tight labor market we.
Want to compete for the best talent.
Have we have amazing talent and assets that we want to retain and reward. So I think that as we look at 2022 in terms of the in terms of the labor market right. Now I think we feel good about that increase that we mentioned to be able to manage through that situation. It's hard for us to know what what 2023 might come might hold for that.
I think in terms of the revenue side, we do make price increases CPI adjustments to our prices and we do that during certain periods of time during the year. We did some adjustments like that going into 2022, but we also tend to take number one we have a lot of long term contracts that really don't lend themselves to year over year.
Pricing price increases and secondly, we take a long term view of our clients, we really want to make sure that we're managing to a long term relationship that theyre getting value for every dollar of their spending and so we do do some CPI adjustments, but we generally try to manage our prices based on incremental value that providing to them.
Very helpful. Thank you.
Our next question comes from Brian Bedell with Deutsche Bank.
Great. Thanks, good morning folks.
Good morning.
Good morning.
But just back on the topic of the day, the Amazon Web services partnership.
Another question on that.
How are you thinking about the scalability of.
That migration over overtime I realize it's still very early but on.
On the in terms of the impact Nasdaq's expense base, maybe first of all can you frame out what sort of the build.
The components of the build and the 2022 guidance it might be and then how should we think about the ability of this partnership too.
You can reduce the long term expense growth of NASDAQ will become more scalable and then longer term do you view the partnership.
As more of the revenue opportunity.
We're more of a cost reduction opportunity for Nasdaq.
Yes, so I think.
The good news is that we've been working over the last five years with AWS to move a lot of our surrounding systems around the markets into the AWS cloud.
Which is actually accrued greatly to our benefit over the last five years because for instance, just with these record volumes, we're experiencing the surrounding systems, which are like trade management solutions.
All of the things that happened right. After the trade we have hyperscale ability of our solutions today that otherwise we would have had to buy hardware to support. So so that's been a real benefit to us and allows for us to have both scalable.
Scalability for our clients, but also <unk>.
<unk> moderation for in terms of our Capex expenses I think as we go forward a few things. We also have spent the last five years building out our next generation trade lifecycle solutions to be a cloud ready cloud native solutions. So we are deploying that we deployed that for RPX options market in 2020, we're now deploy.
That for <unk> in 2022, we're also deploying that for our derivatives markets in the Nordics early that right at the beginning of 2022 and in fact in the next month or so.
And we're deploying that out to our market tech clients in terms of our clearing solutions and our trading solutions. So.
We have already been making the investments that we've needed to make to make sure that we are building out our solutions to support an AWS environment now, it's really the partnership with Equinix, and AWS, where theyre going to be making their investments in our infrastructure to make it so that we can execute against what we've been discussing so we see this.
It's very much part of our our three 6% expense growth really fab.
Factors in the investments, we have been making and we will continue to make in this area. So that also.
Terms of once we get to scale and we have fully deployed everything fully deployed we do have the opportunity to look at lower Capex expenses more more scalability in our expense base, but also I think that the bigger opportunity for us is in the revenue side, because we have a bigger footprint in order to support our clients.
In the U S and we have the ability to deploy this very differently to our clients around the world. So that to us is definitely the bigger opportunity in the long run.
That's very comprehensive in three to five year period is what you would describe as the long run.
I think that we actually look at this as these things always happen in slower motion than you think so.
Yes, we have we have six options markets in the U S and three equities markets in the U S and so we're starting with one as I said, we'll gain some experience before we set a timeline for the rest.
And as we deal with our market Tech clients those types of implementations, especially when you're changing out infrastructure youre looking at probably a two to three year type of implementation once we've actually come to an agreement. So this is more like.
I would say five to seven years, but I think thats the bet.
Our timeline to consider.
Got it thank you so much great quarter.
Okay. Thank you.
Our next question comes from Michael Cyprus with Morgan Stanley .
Hey, good morning, Thanks for taking the question just wanted to circle back to the NASDAQ data link you mentioned, the new data fabric offering I guess just a bigger picture question here is how do you see the data link.
Offering evolving over the next couple of years I guess, what's your vision for that looking out five years and maybe talk about what's on your to do list in terms of next steps as you look out to 2022.
Sure, Yes, I mean, I think that's one of the things we hear from our investment management clients is their biggest challenge is managing their data. They are dealing with all of this data both the traditional financial data that they've always have but then alternative data and other other new data points that they think that might be relevant to making investment decisions.
Managing their portfolio risk so what what data fabric does is we data link in general is there as a container for alternative data as well as financial data our traditional market data other exchanges data et cetera to kind of make it. So it's really really easy to implement and it's a.
It's a cloud based solution that is really ultra light in terms of for clients to be able to access. The data then with data fabric. What that does is it almost created data management layer for our clients. So they can put their own data their own research into the same platform and make it so that it's all there in one container available to investment professionals to the trader.
<unk> to the research analysts.
It creates a little bit of order out of the chaos that theyre dealing with right now in terms of management of data. So that's the that's the whole division or that's what we've built in terms of implementation and the five year plan.
I think that obviously the cloud is there to support more and more real time workloads to cloud is there to be able to offer you a much better ability to create analytics off that data to do machine learning algorithms on the back of the data and Thats, where I think over the next five years, we need to continue to enable our clients to leverage.
<unk> the benefits of the cloud as well as the kind of the order and the capabilities that we can we can supplement that data with so that's our view, Mike, but it's that's a longer term view as to how we how we help our clients manage through this.
Great. Thank you. Thank you.
Okay.
That concludes today's question and answer session I would like to turn the call back to Adena Friedman for closing remarks, great.
Thank you very much well. Thank you so much for your time today and closing Nasdaq's fourth quarter and full year 2021 performance was solid and we are starting off 2022 with really strong momentum our leadership team remains very focused on executing our strategy to deliver for all of our stakeholders and we look forward to continuing our discussions throughout.
The year on the progress that we make as we continue to <unk>.
Advance our strategic priorities and ambition. So thank you very much and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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