Q2 2023 Nasdaq Inc Earnings Call

July 19, 2023

Good day and thank you for standing by welcome to Nasdaq's second quarter 2023 results conference call. At this time, all participants are in a listen only mode.

After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you wouldn't hear an automated message advising your hand is raised to withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded I'll now like to hand, the conference over to Otto Garrett Senior Vice President Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining us today to discuss Nasdaq's second quarter 2023 financial results.

The line are Adena Friedman, our chair and Chief Executive Officer, and Dennis <unk>, Our Chief Financial Officer, John Zecca, our chief legal risk and regulatory officer, Tal Cohen, President and other members of the management team. After prepared remarks, we will open up the line to Q&A. The press release earnings presentation and supplemental agenda information are on our website.

We intend to use the website as a means of disclosing material nonpublic information and complying with disclosure obligations under SEC regulation FD.

To remind you that certain statements in this presentation and during Q&A may relate to future events and expectations and as such constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Actual results may differ materially from these projections information concerning factors that could cause actual results to differ from forward. Looking statements is contained in our press release and on periodic reports filed with the SEC I will now turn the call over to Anita. Thank you Matteo and good morning, everyone. Thanks for joining US my remarks today will focus on nasdaq's second quarter business and.

Performance.

Progress, we're making to deliver on our strategic objectives, and how our recently announced acquisition of magenta advances our vision to become the trusted fabric of the world financial system.

Then turn the call over to Anne to review.

For a review of our financial results.

I'd like to begin with an update on our strategic transformation underway at NASDAQ since 2017, when we sharpened our focus towards becoming a leading technology provider to the global financial system.

Made significant progress on our strategic journey by allocating capital to our biggest growth opportunities and reorienting, our businesses to align better with the key mega trends shaping the global economy.

Over that period, we are focused on our innovation strategy on maximizing the potential of cloud computing and AI across our products and markets, while strategically divesting more than $700 million in noncore assets. We've also delivered consistent execution in our operating business through dynamic operating environment, demonstrating the power of the diversified platform.

We have built at NASDAQ <unk>.

That execution strength is reflected in our second quarter performance, which I'll discuss shortly in greater detail, but first let's spend a few moments on at Enzo.

When we announced the acquisition of a Dent on June 12, we took a seminal step in our journey to becoming a leading technology provider to the global financial system.

Our consistent throughout nasdaq's, an agenda, a dentist journeys had been our dedication to our clients as a financial industry faces a steady stream of new regulations and reforms that presents reputational and financial risk we are positioned to be a key partner in helping participants manage those risks.

Thirdly, we will enable our clients to meet regulatory mandates to reduce financial crime managed liquidity risk and provide resilient capital markets infrastructure, all water reporting on their compliance to over 100 regulators and agencies around the world.

The addition of a dentist capabilities to the NASDAQ platform will increase our serviceable addressable market by approximately 40%.

We saw further evidence of the power of the <unk> business and its performance during the first half of 2023 the.

The company has maintained strong annualized recurring revenue or <unk> growth in the high teens as compared to the prior year period, which was underpinned by continued strength in gross and net revenue retention at 98% and 115% respectively.

As we discussed in our initial investor call post announcement, the fundamental drivers of growth in <unk> business comes from new client sales cross sells and upsells to existing clients consistent with their strong performance in signing new clients over the last two years, which has provided in more detail in the supplemental information that we provided this.

Third Calypso and axiom SL continued to demonstrate strong growth across new logo wins and client upsells in the first half of 2023 validating our acquisition thesis, specifically Calypso signed seven new clients and completed Upsells to 40 existing clients in the first half of the year.

<unk> added seven new logos two of which were cross sells are calypso clients and completed up sells to 25 existing clients during the period there.

The recent performance of <unk> furthers, our conviction that we are working towards acquiring a business that delivers world leading solutions that meet the growing dynamic regulatory needs of our clients.

Upon closing of the <unk> acquisition, our focus will be to maximize the client and shareholder benefits with our strong combined free cash flows our capital allocation priorities over the next three years are as follows first we will begin to delever to meet the debt to EBITDAR targets that we disclosed upon deal announcements second we plan to continue to increase our dividends to achieve.

A 35% to 38% payout ratio over the coming three to four years and third we plan to buy back stock to offset employee and deal really related equity dilution.

We do not anticipate making any significant acquisitions that would deter us from executing sizable stock buybacks over the next three years.

We expect the transaction to close within approximately five to eight months subject to regulatory approval and customary closing conditions and we look forward to updating you as we move through the closing and integration process.

Now turning to the second quarter results I'm pleased to report Nasdaq's continued solid financial performance in the second quarter of 2023, we.

We achieved $925 million and net revenues, an increase of 4% compared to the prior year period, and an increase of 4% also on an organic basis, excluding the impacts of changes in FX and an acquisition and divestiture.

Revenues across our solutions businesses were $674 million up 6% from the prior year period on a reported and organic basis.

Our total <unk> increased six 5% to $2 $1 billion annualized SaaS revenues totaled $755 million in the second quarter, which represents an annual growth rate of 11%. Our SaaS revenues comprised 36% of total company <unk>.

And our capital access platforms Division, we delivered $438 million in total revenue in the second quarter, a 4% increase from the prior year period.

Our index revenues grew 4% organically from the prior year period, the rebound in our index business reflects strong year over year market performance and inflows of $25 billion over the past 12 months, including $10 billion in the second quarter, partially offset by lower volumes in the index related futures products rare.

Revenues within workflow and insights grew 5% organically over the prior year period, reflecting sustained demand for IR and ESG solutions and steady analytics solutions sales to asset managers.

Similar to the start of the year, we continued to experience elongated sales cycles in certain products within this business as clients escalate buying decisions through more levels of approval, which has had a modest impact on a year over year growth overall.

Overall across the business, we continue to see opportunities to drive wallet share expansion through cross sell campaigns to existing clients, especially as uncertainty in the capital markets often leads to increased demand for analytics solutions from asset owners and asset managers as well as corporate services across Investor Relations and governance.

Our data and listing services revenues grew 2% organically, we experienced 5% growth in our data revenues, primarily driven by growth in our recurring data revenues across our international footprint with a weaker IPO environment, we saw stable listings revenues year over year.

We maintained our track record for winning new operating company listings and year to date NASDAQ has welcomed 48, new operating company Ipos for 77% win rate, including two of the top three operating company Ipos by proceeds raised in addition, we have a strong pipeline of companies that are committed to Nasdaq.

We remain well positioned to capture future new listing activity and are in close contact with these companies as they evaluate their IPO timelines.

Turning abroad, we welcomed six new listings across our European markets, bringing our year to date total to 13, new listings NASDAQ Stockholm continues to be one of the leading European exchanges for small to medium enterprise listings welcoming nine new listings in 2023 year to date.

Next in our market platforms Division, we delivered $397 million in total revenues during the second quarter, a 2% organic increase from the prior year period, driven primarily by an increase in the marketplace technology revenues, which grew 5% compared to the prior year period.

And our trading services business revenues were flat organically compared to the prior year with higher U S cash equities revenue offset by lower European equities revenue.

I would like to highlight the performance of Nasdaq's closing cross during the annual Russell U S indexes reconstitution, which occurred in late June .

For NASDAQ listed Securities. The closing cross successfully executed approximately $2 6 billion shares representing $62 billion of market value in just over eight tenths of one second.

This represented the second highest volume of shares cross since you implemented the closing cross in 2000 and for.

I'm incredibly proud of our continued leadership and operating the industry's most robust and resilient market infrastructure.

Turning now to two strategic portfolio and capital allocation decisions within our market platforms business first as we previously announced.

During the period, we entered into an agreement to sell our European power trading and clearing business to the European Energy exchange.

This decision aligns with our renewed focus towards investing in opportunities that will deliver the most value to our clients and shareholders and build on our strong position as a leading market operator of European equities equity derivatives and fixed income while also expanding our leadership in providing sustainability solutions with Piero Earth.

Our voluntary carbon removal marketplace.

We expect the closing to take place in the first within the first half of 2024 upon completing all outstanding closing conditions. The transfer of membership interests will occur shortly thereafter.

Turning next to our digital assets business this quarter, considering the shifting business and regulatory environment in the U S. We've made the decision to halt our launch of the U S digital assets custodian business and our related efforts to pursue irrelevant license.

However, we continue to build and deliver technology capabilities that position NASDAQ as a leading digital asset software solutions provider to the broader global industry.

This includes advancing our custody solution as a technology platform to serve the broader global digital assets marketplace.

More broadly we remain committed to supporting the evolution of the digital asset ecosystem in a variety of ways among them through our ongoing engagement with regulators the delivery of comprehensive technology solutions across the trade lifecycle and through our partnerships with potential ETF issuers to support tradable exchange listed products.

We will discuss the modest financial impact of our decision for the remainder of 2023.

Turning to the marketplace technology business revenue grew 5%, reflecting growth in both trade management services and market technology.

During the quarter, Chile Central Securities Depository D. C V announced a significant expansion in its partnership with NASDAQ with plans to leverage our technology to issue and settle digital digitize securities.

Expansion of our existing partnership with <unk> highlights the increasing global desire for market infrastructure that can leverage existing security systems to service emerging asset classes.

Additionally, we signed a partnership with Brazil, B three exchange to deliver a new clearing platform. The multiyear agreement will focus on leveraging our technology to evolve our existing clearing settlement and risk management capabilities to support the rapid growth of the Brazilian market.

We also completed deliveries for seven major market infrastructure projects during the period, including powering the launch of the stock exchange of Thailand, New trading system, which included additional market data distribution and market surveillance systems.

This implementation of our Nextgen trading technology solution marks a significant milestone in the ongoing development of one of Asia's fastest growing exchanges and illustrates our ability to bring our modern market infrastructure technology to new partners in the region.

Finally, turning to our anti financial crime Division, we delivered $89 million in total revenue for the second quarter, a 19% increase in the prior year period, all of which was organic.

We continue to expand client relationships, signing 51, new financial institutions to our fraud and anti money laundering, or what we call <unk> solutions, including 47 medium small to medium sized banks.

As we previously announced we signed four large financial institutions in the second quarter, including two tier one and two tier two clients.

The growing adoption of our <unk> solutions across the banking sector is a strong indication that banks of all sizes are prioritizing risk management spend and looking to NASDAQ to provide mission critical anti financial crime solutions.

Our surveillance solutions also continued to perform well with 13% revenue growth this quarter, which was all organic led by increased subscriptions from both new and existing clients. We added 10, new clients in the second quarter, reflecting strong demand for our trade surveillance and our crypto market surveillance solutions.

We had several large clients signed long term renewals in the first half of the year that included pricing adjustments to reflect the increasing value that our surveillance solutions provides to our clients.

To wrap up our second quarter results demonstrate how nasdaq's client centric culture and diversified business model provides the stability to perform well in different market environments.

I also like to reiterate our excitement around the acquisition of <unk> and the impact we believe it will have for our clients and shareholders. It will accelerate our strategic journey, enabling us to deliver even more mission critical platforms that enhance the liquidity transparency and integrity of the global financial system and.

Denzer combined with our powerful existing solutions sets us up for faster growth and even greater success in the years to come and with that I will now turn the call over to Ann to review our financial details.

Dana and good morning, everyone before getting to our second quarter results I would like to comment on strategic activities across the company starting with the divestiture of our power trading business in Europe , We do not expect the recently announced sale of the business to have a material impact on our financials and we plan to include historical results for this business and the corporate and other portion.

Of our financials, starting next quarter. Once all open interest is transferred we expect the sale to reduce annual revenues and expenses by approximately $35 million and $35 million and $20 million respectively.

Turning now to agenda, we have seen it tends to continue its strong execution across both new customer wins and cross selling activity. These new customer wins and expansions contributed to agenda achieving year over year <unk> growth in the high teens with both calypso and axiom, each delivering solid double digit <unk> growth over the <unk>.

Last year at <unk>.

Abided, a supplemental information deck that includes information about a debit business and recent performance to help further illustrate <unk> continued strong momentum.

As we embark on our integration planning with the ADESA team, we remain confident in our ability to deliver on the $80 million and net cost synergies by the end of year two post closing in order to provide our shareholders transparency into our progress in achieving our agenda related expense synergies, we will disclose the onetime costs related to achieving our synergies.

Or at least from our existing restructuring program that we announced at the start of 2023 related to our divisional realignment.

To finance the <unk> acquisition, we have secured financing for the transaction through a successful bond issuance in June issuing 425 billion.

U S dollar denominated debt across two 510, 30, and 40 year terms as long as the 750 million euro denominated eight year bonds.

To enable us to manage our deleveraging plan, we expect to fund the remainder of the cash component of the transaction with the $600 million term loan that we plan to issue just prior to closing as well as commercial paper.

The estimated weighted average cost of this debt is just under five 5%.

To minimize the carrying cost of the debt prior to closing we are investing the proceeds of the bond issuances issuances in highly liquid and low risk investment and we expect the net carry to be less than 50 basis points at current market rates, which will be excluded from our non-GAAP results.

With regards to our capital allocation priorities moving forward as we work to integrate <unk> and optimize our business to achieve the full benefits of the acquisition. After the closing we will be focused on using our free cash flow to generate a return for our shareholders specifically.

Specifically looking back to 2022, NASDAQ generated approximately $1 $4 5 billion and operating free cash flow.

22, NASDAQ returned approximately $380 million in dividend, which was 26% of free cash flow and we expanded approximately $230 million to offset employee related dilution.

That left us with over $800 million in free cash flow to use for other strategic and investor return activities.

With the addition of the shares that will be issued to acquire agenda. If all else stays the same our dividend payment at the current payout of 22 per share will increase to approximately $510 million annually.

We have also stated our plans to increase the dividend to achieve a 35% to 38% payout ratio over the next three years to four years, which implies an approximately 10% CAGR on the dividend payout ratio over the period.

We expect attempted to generate approximately $300 million in unlevered pretax cash flow in 2023, we expect the debt financing for our planned acquisition of <unk> to result in annual interest payments of approximately $325 million.

As more than a dentist or free cash flow. However, as addenda grows and we and as we pay down debt, we expect incremental free cash flow from the addition of ADESA to fund incremental debt repayment and share buybacks.

Based on the 2022 results combined combined with the full year 2023 estimates for ADESA, we would have approximately $700 million of excess annual free cash flow beyond our dividend and employee related buyback and we expect that amount to grow commensurately with our earnings growth over the next three years.

But the remainder of the free cash flow over the next three years, our priority is to Delever and bring our leverage ratio to four <unk> times within 18 months at three three times within three years.

Achieving our ratios reflect the combination of business growth that drives increase.

Increases in EBITDA as well as debt paid out.

Therefore, we will not provide specific paydown schedule.

However, based on our debt maturity profile and the nature of our debt, we will have the flexibility to pay down approximately $2 million between now and year end 2026, without any prepayment penalties or other restrictions.

Well, we don't anticipate needing that full amount to support our path to three three times, we want to have the flexibility to accelerate and or exceed our paydown expectations. If we believe is the best use of capital to drive shareholder returns.

We will also execute share buybacks to help offset the acquisition related share issuance and support EPS accretion.

After our debt Paydown, we will focus on using the vast majority of our remaining free cash flow to execute share buybacks.

Our focus over the coming years will be to maximize the client and shareholder benefit we received from the <unk> acquisition. Therefore, as Dino mentioned earlier, we do not anticipate making any significant acquisition related capital allocation decisions that would deter us from sizable stock buybacks over the coming years.

Turning to this quarter's results.

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 final located in the financials section of our investors Investor Relations website at IR Dot NASDAQ Dot com.

I will start by reviewing second quarter 2023 performance beginning on slide 11 of the presentation.

The 4% increase in reported net revenue of $925 million is the net result of organic growth of 4%, including a 6% organic increase in the solutions businesses and stable trading services revenue and $4 million of net negative impact from changes in FX rates and an acquisition and divestiture.

Moving to operating profit and margins non-GAAP operating income increased 1%, while the non-GAAP operating margin of 52% was down approximately 140 basis points from the prior year period, non-GAAP net income attributable to NASDAQ with $350 million or <unk> 71 per diluted share compared to 300.

Third $42 million or <unk> 69 cents per diluted share in the prior year period.

Turning to slide 12, as Dino mentioned earlier <unk> totaled $2 1 billion.

An increase of six 5% from the prior year period, while annualized SaaS revenues totaled $755 million, an increase of 11%. We are delivering solid performance. Despite low IPO volumes and you love to get elongated sales cycles in certain areas of the capital access platform Division, which had a modest impact on the rate.

Of our SaaS growth this quarter, we are well positioned to deliver improving revenue growth as sales cycles normalize and capital markets activity increases.

I will now review quarterly Division results on slide 13 through 15.

Starting with the market platforms division revenues increased $5 million or 1% with an organic increase of 2%.

Trading services organic revenue was flat with higher U S revenues driven by strong U S equities capture and continued options volume.

Set by lower trading revenue European trading revenue due to lower volumes despite better share.

And marketplace technology, we delivered 5% revenue growth driven by strong results in both trade management services and market technology. As a reminder, trade management services revenue growth in the first half of the year benefited from testing revenue that we do not expect to occur in the second half of the year. Additionally, we will face tougher comps in the back half of the year as we cycled.

Through strong revenue growth, we had in <unk> last year and therefore, we continue to expect full year revenue growth for marketplace technology to be at the upper end of our medium term outlook.

<unk> totaled $516 million, an increase of 5% compared to the prior year period.

The division operating margin of 53% in the second quarter of 2023 reflects a 200 basis point decrease from the prior year period due to lower revenue, resulting from lower European trading activity with ongoing investments related to migrating U S markets to the cloud and investment in new growth opportunities in marketplace technology.

Capital access platforms revenue increased $16 million or 4% with organic revenue growth of $15 million, excluding $1 million related to an acquisition.

Broken the division was broad based for the quarter, specifically index revenue returned to growth delivering a 4% increase compared to the second quarter of 2022, primarily driven by a 9% increase in average AUM over the last year.

Licensing revenues for futures contracts linked to the NASDAQ100 index declined 9%, reflecting a 28% decline in trading volumes, which was partially offset by higher pricing per contract.

Second quarter revenues also benefited from improving futures revenue share related to meeting certain contractual milestones in the quarter.

Additionally, we saw net inflows over the trailing 12 months of $25 billion, including $10 million in the quarter.

In data revenue grew by 5% due to continued strong demand from enterprise and international customers strategies with growth in recurring data sales driving solid revenue growth.

Listings revenues with listings revenue was flat year over year due to continued weak IPO environment, coupled with slightly elevated delisting, including back.

Workflow and insights revenue increased 5% organically compared to the second quarter of 2022, reflecting growth across our ESG IR and analytics businesses. Despite ongoing elongated sales cycles, among corporate and asset owners affecting revenue growth in the second quarter.

For capital access platforms totaled $1 2 billion.

An increase of 4% compared to the prior year period, which reflected a significant slowdown in new listings and the impact of continuing elongated sales cycle.

Division operating margin was 55% in the second quarter of 2023, a decrease of 200 basis points from the prior year period.

Anti financial crime revenue increased $14 million or 19% compared to the second quarter of 2022 organic growth was 19% in the period growth reflects robust demand for fraud detection and anti money laundering solutions as well as our SaaS based surveillance solutions, specifically, our fraud detection and AML solution.

<unk> revenues grew 23% compared to the second quarter of 2002.

Surveillance revenues grew 13% compared to the second quarter of 2022 with solid growth in subscription revenues from new and existing customers, partially offset by softer professional fees.

Era for anti financial crime totaled $339 million, an increase of 18% compared to the prior year period signed <unk>, which also includes <unk> for new contracts signed but not yet commenced totaled $365 million, an increase of 20% versus the prior year period.

The anti financial crime Division operating margin was 36% in the second quarter of 2023 versus 27% in the prior year period with approximately one half of the margin growth, resulting from a benefit in our expenses due to a onetime adjustment to the incentive compensation program.

Turning to page 15 to review both expenses and guidance.

non-GAAP operating expenses increased $28 million to $441 million. The increase primarily reflects a $34 million organic increase of 8%, partially offset by a $6 million decrease from the impact of changes in FX rates.

The organic expense increase was primarily driven by higher compensation and benefits expense, reflecting higher head count and technology spend as we continue making growth investments across the platform.

Compared to the first quarter of 2023 expenses increased due to the timing of our annual merit adjustments and equity grants.

However, it is the sequential increase was less than we expected due to the previously mentioned one time adjustment to the AFC incentive compensation program as well as lower than expected hiring and client incentive marketing spend.

We are narrowing our 2023 non-GAAP operating expense guidance by $30 million to a range of $1 785 billion to $1 81 5 billion.

The midpoint of the expense guidance range now represents an annual expense increase of just below 5% for 2023.

The decrease in our expense growth expectations, primarily reflects the impact of our decision related to the redesign of our digital assets offering as well as the adjustment to the ASC incentive compensation program is.

Assuming stable performance in exchange rates. We currently expect 2023 expenses to be near the middle of the updated guidance range.

Additionally, due to the timing of expected expenses, we expect a greater sequential increase in expenses in the third quarter than in the fourth quarter. Our full year non-GAAP tax rate is expected to be in the range of 24% to 26%.

Turning to slide 17, excluding again the related debt our adjusted total debt to trailing 12 months non-GAAP EBITDA ratio ended the period at two six times consistent with the first quarter of 2023, and there are no long term debt maturities until 2026.

With our strong balance sheet and cash flow generation, including one $5 billion of free cash flow on a trailing 12 month basis, we continue to be well positioned to support growth in a variety of macroeconomic backdrops.

During the second quarter of 2023, the company paid common stock dividends in the aggregate of $109 million.

As of June 32023, there was an aggregate $491 million remaining under the board authorized share repurchase program.

In closing today Nasdaq's second quarter results reflect a continuation of the companys ability to perform consistently well across a wide range of operating environments.

Thank you for your time and I will turn it back over to the operator for Q&A.

Thank you.

As a reminder to ask a question you will need to press star one one on your telephone to withdraw your question. Please press star one again.

We ask that you keep your questions to no more than one question and one follow up and if time permits we'll be more than happy to take any more questions. Please standby, while we compile the Q&A roster.

And I show our first question.

It comes from the line of.

Owen Lau from Oppenheimer. Please go ahead.

Good morning, and thank you for taking my questions.

So for the two new tier one and tier two clients signed and type of inquiry in the second quarter could you. Please give us an upgrade on the timing of it.

Location and a tightened focus of restaurant meals and also increase also give us more color on the traction and pipeline businesses. Thanks.

Sure. Thanks Alan.

So with the tier one and tier two clients some of them we signed.

Two of them kind of in the early in the quarter and signed two more of them a little bit later in the quarter I think that each of them is going to have a different slightly different timeline. These are more common.

Complex implementations, but we would expect kind of a six to nine month implementation period for them.

So.

And we will start to therefore be able to kind of demonstrate the revenue benefit of them as we as we bring them online.

Hopefully that means that we'll be able to.

At least most of them into online before the end of the year or early next year. So I think the plan right now in terms of the pipeline. We actually are very encouraged by the continued pipeline of larger larger banks that are.

Working with us either contracting or on P&C is we have several that are working with us.

In our proof of concepts and another another several that are working on the best and contracting.

But of course as we've talked about from the very beginning the contracting process with banks takes a long time, particularly as you get up market and so this will continue to be at what I would call it slow moving train.

Continue to to bring more of the larger banks online to our anti fingerprint solutions.

Got it that's helpful and also Eric are recognized.

We cover a lot of the revenue actually came in much stronger than our expectation and I think I've mentioned like circuit pricing on certain contractual milestones, but are you sure.

Anything you want to highlight on this basis. Thank you.

Sure. Thanks Alan.

Did we did update our disclosures at the beginning of the year to help you understand the average AUM for the for the quarter for each quarter I think with regard to so you have to kind of look at it both on the <unk> side and we do provide a fair amount of disclosures to help you estimate that I think then on the trading side.

As we said, it's a combination of things, it's obviously commercial pricing that CME chooses the combination of that the volumes and then how the contract works and as with prior quarters. We did have new contractual tier in the second quarter, which I think has been consistent with prior years.

I don't think there's really other things to really mentioned there other than just we're really excited frankly to see the recovery of Amdocs the.

The fact that it's obviously, reflecting the recovery of the market.

And most notably what we can control, which is the inflows into the into the indexes that $25 billion over the last year.

Thank you very much.

Sure. Thanks.

Thanks Alan.

Thank you.

And I show. Our next question comes from the line of Patrick <unk> from Piper Sandler. Please go ahead.

Yes. Good morning, Thanks for taking my question.

Dean I wanted to go back to again.

Your stock is.

Negatively since the acquisition. So just wondering based on maybe your conversations with investors.

Do you think investors are getting about this acquisition.

And then what if anything if you could maybe surprised you about the reaction since the announcement.

Sure. Thanks, Patrick so.

As I mentioned before we are very excited about being able to bring <unk> to NASDAQ and I do think that you know, we're making a long term conviction decision here to grow and expand our platform to be able to serve the financial institutions more holistically.

The factors or events as a private company and there was a lot for investors to learn it's obviously also a big capital allocation decision that we're making and so we're trying to make sure that we continue the educational journey with investors and we provided a supplement today, but hopefully it gives a little bit more color on that.

The depth of the of the clientele.

<unk> of the products and how we look at it together in terms of how we can provide complete risk management Reg Tech type solutions for our clients and how all of our solutions will fit together I just think that it's you know as we've mentioned before it's an exceptional asset it's got 15% growth and we're kind of saying the range of 13% to 16% in general.

And has 98% gross revenue retention of 115% net retention, it's still a signing on new clients across the spectrum of the client tell around the world and it offset with clients really successfully we're also seeing a lot of great tailwind.

Frankly, just from the changes in regulation with including the fed the fed announcement last week in terms of new proposed rules for the U S banks.

That will obviously play into the capabilities and one of the examples we provide in the supplement is from a super regional bank in the U S that hasn't for 100 billion on assets.

Kind of signed on for the axiom solutions very quickly as they're looking at the new the new rules that may be coming but we also have a whole range of new rules, obviously across the world and that is a very dynamic environment, It's super complex.

And I think also as as banks also look to expand growth expand regionally expand asset classes.

They leverage our solutions and we can expand with them. So I have to say we are clearly very excited to help them solve their most challenging operational problems. I think we also want them to be able to see kind of what I call simplify the complexities that they are dealing with with technology and over time, we feel very very confident.

<unk> that we won't be able to demonstrate both to the clients and to the shareholders that this is a great a great business to have within NASDAQ.

Okay, great. Thank you.

Thanks, Patrick.

Thank you.

And I show. Our next question comes from the line of Michael Cyprus from Morgan Stanley . Please go ahead.

Hey, good morning, Thanks for taking the question, maybe just circling back to the.

Capital access platforms, you mentioned seeing some increased demand internationally for that I was hoping you might be able to elaborate on what sort of data sets and customers, which countries are you seeing that from thank you.

Thank you Michael you know, we don't provide details on every country, but I would say we've been very successful in expanding across Asia, and Latam and that continues so it's not just <unk>.

I would say as we started our efforts in Asia. Several years ago, we found a lot of great demands and China and then we expanded into Korea, and now into Southeast Asia and so it's just it's just it's a great opportunity for investors from all over the world to gain exposure to U S market can understand the data in real time and then we also expand.

<unk> done a really nice job of working with our colleagues at.

<unk> managed for instance listings in market Tech and not in America to kind of open up the Latin American market for data.

And we continue to see really really strong demand. There. So it really has been a kind of a global expansion of the distribution of real time information and then we also have our data link platform and that's also growing nicely with some really unique datasets that are clients or are adding to their portfolios and so that also has been a really nice growth pillar for us in the data business.

Im sorry, which type of data is this.

I mean, we've talked about that at length being kind of a delivery mechanism for our market data for third party kind of what we call.

Unique datasets that we think will help clients.

You look at kind of underpinning like Kpis and other things that might underpinned. The performance of companies. We also provide them information around retail flows within the data linked platforming partnership with our clients with the with a partner and so it's really kind of a full range of information or data sets that are available data length. So there is actually a website.

Very interesting I've got provides kind of a library of all the different datasets are available through data link.

Actually it's what's really cool is theyre all offered in and out through a very modern API structure. So it's really easy for clients to take the data and integrate them into their internal it systems.

Great. Thanks, and just if I could ask a follow up question on <unk>. So I was hoping you might be able to talk about the sales strategy their approach to marketing and sales efforts. Maybe you can elaborate on how large their team is how thats organized and how you might evolve their approach and resources.

Sure, Yes actually its one of the things we really like about how they are organized the business. So when our calypso and axiom came together what they did was they still have two discrete platform technology platforms, and I think that they do salt different needs. So it makes sense for those platforms to be discrete but first of all before I talk about marketing.

Thank you are there all theyre starting to demonstrate the power of the business by sharing data through modern Apis that they can cross over from one platform to another to service specific clients and I think that's going to help US cross sells are going forward, but the way that the organize the go to market is that they have they have a product team.

And the product team has kind of a marketing component of our marketing team with and Thats a product marketing and let me also have specific product sales of our people and then we have an enterprise sales team and our enterprise sales team really is regionally focused and really talks to kind of goes as high up in the organization as possible to talk about the complete solution.

To understand their needs to understand their problems and then they'll bring in our product sales team to help with specific kind of describes specific products and capabilities that the company has and then once a client signs a contract that may start to engage with the client success team and client implementation team and the way that they've been able to organize side as they try to match.

Sharp declines success organization with specific sale enterprise salespeople, so that there's consistency in the experience that the clients have moving into implementation.

And then they have a very good and scale client success organization. So we like that model because it kind of creates kind of an umbrella go to market and client service capabilities across multiple products and so as we as we bring again tend to NASDAQ and we think about how we want to integrate that with our market technology business.

This was the surveillance business, we think there's opportunities for us to really leverage that scaled model.

For the broader technology platform and that then allows us to go in kind of towards the top of the house within the banks explain.

Our complete solution suite, and then deploy our product teams.

Perforate Lee into to meeting their needs. So we're very excited about that.

Great. Thanks, so much.

Sure.

Thank you.

And I show. Our next question comes from the line of Alex Kramm from UBS. Please go ahead.

Yes, Hey, good morning, everyone, everyone, just starting with a follow up on <unk> and this is maybe nitpicky, because we're just getting used to some of these new disclosures, but when I look at signed IRR on a quarter over quarter basis, which should imply that new sales I think that was $11 million, which if my numbers are right as flat year over year.

So when I think about those four bigger size wins.

Does that mean that what does it what does it imply for the rest of the business that does it mean slower sales to tier three and beyond slower pricing power or again. It's these are small numbers, but just wondering if the remainder of the business is chugging along quite well as well.

Yeah no.

I would say I'm not going to go to kind of go into all of this discrete details, but I would say that the business is chugging along quite well I mean, you had 47, new small to medium bank clients signed on in the quarter.

And then we had before and so kind of the composition of our block you kind of unpack, what you're asking and make sure that we can give you a more discreet answer but generally speaking it's generally healthy I mean, we have a good signings of the small to medium banks. We have good good signings of the larger banks and those will come online as we get later in the year on year.

That it's signed they are so they should be reflected there and then of course in our surveillance business also.

We have essentially a 10 new clients. So I think we'll have to kind of work to make sure that we reflect that in a way that helps you, but but I think we said basically 20% growth in <unk> year over year. So we'll have to understand where your question later.

Fair enough and then secondly, this is maybe a little bit more strategic but clearly you announced another divestiture during the during the quarter and that's been part of kind of like the strategic pivot as well.

Now that you've done at Enzo reasonably sizable deal big leverage the question, that's been coming up a little bit more I think he could there be other bigger divestitures would actually help accelerate the pivot is even further.

And.

Not surprisingly all mix comes up.

A lot here, so I know youre not going to talk specifically about that asset I guess in terms of any potential sell it but maybe you can just remind us why all mix although related business is a core component of the nasdaq's strategy, how it fits in there because clearly by asking the question.

And I know you are in Europe . This week.

Selling or youre hearing out there, but but first of all we don't use the name <unk> anymore. Because they are they've been part of the NASDAQ family for 15 years or so.

Our European trading our European markets business isn't it.

<unk> strategic part of who we are and I think that I can say that with great conviction and the reason is that number one the European business I mean, the Nordic business in the Nordic markets are in my opinion, the shining star of Europe .

Got great retail participation they've got great great great markets, they've got a great financial ecosystem underpinned the market's there I think we've been able to show over the last five years, a very healthy listing environment. We also have great data sales of the Nordic data and then we also have the trading business because that business is comprised of all three of those components.

We also have deep relationships across the Nordic banks and brokerage firms.

We see that team that's in Europe sits right next to our market technology team and the expertise that they have in running their own market. We they are often deployed with our market Tech team to go help.

Develop other markets around the world, we'll bring them out in two markets all over the world and help them, let's say developed their surveillance program has helped them understand market structure and think about auctions and things like that so that team is integral to the market tech team and helping us sell and expand our technology around the world and then also culturally they've been obviously a leader in <unk>.

S G. A broadside ESG culture into NASDAQ They helped us think about designing products that we now provide to our corporates.

To help them manage the.

The complexities there and then we have Piero Earth, which is our carbon removal marketplace that helps corporates meet their zero commitment. So it is an integral part of who we are and then the last thing I would say is we've been on a very specific path to integrate to make our technologies more consistent between the U S markets in the European markets, and we launched our what we call our fusion.

Platform, which I love that name because it is in fact, using our technologies across our market our markets and.

We have deployed that in the Nordic derivatives market, we're now deploying out across our U S options markets all of our surrounding systems have become consistent and so we're going to be able to demonstrate over time, even more scalability across our markets business as we continue to combine that technology. So as you can tell it's a big part of who we are we're really proud and pleased.

To be.

Integrated into the Nordic business says our Nordic markets as we are.

Hopefully that's helpful.

We're very clear and I'll try to forget the Olympics named thanks.

Thanks, Alex.

Okay.

Yeah.

And I show. Our next question comes from the line of Kyle Voigt from K VW. Please go ahead.

Hi, good morning.

So you noted axiom S. L added seven logos and two of those were cross sells to Calypso clients, which really suggests we're having success in kind of driving revenue synergies from that combination just given those businesses haven't been integrated for that long I think since maybe.

July 2021.

I'm wondering how far along again in terms of driving those axiom S. L and calypso revenue synergies and cross sells and I guess is it fair to think that a majority of those revenue synergy opportunities really haven't been realized at this point.

Yeah, actually I would agree with that completely so as need.

Talking about when you are selling into some of these larger banks the process of getting sales done kind of tends to be longer so.

So youre right if they kind of came together in 2021, they've been had integration you know they have their own operational integrations. They were implementing they wanted to educate their sales organization to have that whole enterprise sales model I mentioned it before and so they are just now really starting to demonstrate how the cross sells can work I think they've had at five cross sells and now they are.

<unk> been able to add two more so they are starting to show that there is there is real potential here to cross sell capabilities and hopefully that also means the potential to shorten sales cycles. Because if you have a master services agreement and then you cross sell another product. The hope is that you cannot you can cut down on the contracting time, but.

But it is just beginning in terms of showing how they can open up doors and the other thing to mention is on page three of the supplement we show you. The revenue composition Bye bye banked here or by client here and you can kind of see that there are different right from between Calypso and axiom, but theyre selling into all of those tiers both of them, but they have certain strengths in different tier.

And so as we think about the power of bringing those two platforms together and in the power of bringing our AFC capabilities in our market Tech with it you can kind of think about how we can help each other.

Grow and expand in those tiers, where they may be less penetrated. So that's obviously part of our investment thesis as well.

Okay.

That's great and then just maybe one follow up on <unk>, if I could.

And the Jackie you reiterated that Tam growing 6% at the Sam is growing 8% and I understand there's a lot of opportunity and what the job on driving higher revenue growth near term and that kind of teens growth range.

Especially with the regulatory changes that you cited earlier, but I was wondering if you can kind of re articulate on a longer term basis.

Why is this a denver business might be able to sustainably grow faster than our 6% Tam or an 8% Sam whether that's gaining share competitively or how it's positioned within its sub segments within that Sam.

It would be really helpful.

Yeah sure.

Our gaining share so that's really exciting to see and they are in fact.

Winning with our winning mandates from companies that have competitors. So that is kind of how can you say how they are winning share.

I think that that's a that's a variant that's an exciting part of why we really like their business they have.

Unlike some of their competitors. They are very modular so they can go in and it was one module to kind of break through to a client and then demonstrate their value and then start to expand it across other modules, which then allows them to say you know what we can do that for you instead of this competitor and we can do this for you, but inside of that competitor and they start.

To penetrate the client by gaining share as well as.

Reducing their internal spend and frankly, that's a strategy that we're seeing really successful successfully play out with <unk> as well. So we do know that strategy can be very effective within barrick and just to digress for one second.

We penetrated one of the clients that we went into one of the tier twos, we went and just showing our alerting capabilities and they then say well wait your workflows, so much better than what we have let me actually we're going to use not only our learning, but we're going to use your workflows as well and now they want to and that was on AML and how they want to kind of look over on the fraud side and they have existing.

Systems and fraud, but they realized just how frankly OSM platform is so it allows us to go in and land and then expand by potentially taking out competitors and I think I also think that calypso and axiom. The teams. They don't stand still you know theyre, adding new capabilities.

That will obviously continue to grow the market opportunity and an example of that is that calypso in the last few years have moved into the buy side I'm not sure. It's opening up a whole new segment client segment. They went from like three to I don't want to say the wrong thing, but like 3% to 14% of their revenue and coming from the buy side just in the last few years.

So that's a growth area and then lastly, as they are deploying there.

Solutions and cloud so 53% of their sales this year, so far been cloud deployed on modules that actually allows them to be a managed service provider, which then of course allows them to take a bigger share of wallet as they're managing the product and not just deploying it. So those are all the reasons why we think the revenue growth is highly sustainable.

<unk>.

Okay.

Very clear thank you very much.

Thank you.

And I show. Our next question comes from the line of Michael Cho from Jpmorgan. Please go ahead.

Hi, good morning. Thanks for thanks for taking my question I guess I'll just follow up with another another industrial death.

As well.

When we think about the large recurring revenues.

New clients and Upsells are driving the majority of the revenue growth, if we think about existing clients.

Existing contract.

The volume component called any of those contracted revenues.

But understand that need.

Uh huh.

Let me pull up on luxury growth for fluid ends up I think this may speak to move towards so, but maybe you can elaborate there.

Sure Yeah.

No we have not seen any sort of volume driven.

Contra.

Contracts like that so it's really a solid just think of it as a licensed service maintenance and our cloud delivered subscription.

So they don't have volume kickers within their contracts as far as we know them.

I think it is much more of a traditional software business.

Hopefully that answers your question, it's just a quick question.

Great. Thank you.

Follow up just to switch gears.

On digital.

You mentioned about the custodian initiatives being halted.

Queen pivot away permanently or more of a delay and I realize NASDAQ still going to be highly involved in the digital asset ecosystem.

<unk> full way, but hoping you can kind of flush out some of the considerations here.

Thought about the custodian and she initiatives. Thanks.

Yeah, and I try to avoid the word forever, but I would say that you know what.

We've chosen to do is really.

Hum our efforts and.

And deploying a customer solution.

As a custodian I should say like being a custodian in the U S. A crypto marketplace.

And the regulatory environment is fast changing right.

At least trying to evolve into something Thats understandable.

See how it goes over the next several months.

And so I think and maybe years, but we like to operate in environments that have a pretty well known regulatory underpinning. That's just where we're comfortable it's consistent with our risk tolerance, it's consistent with how we know we can be successful and the regulatory nature of the business has evolved a lot and.

The lack of clarity I think has made it so that as we looked at the opportunity set of just being a custodian nothing else like just that one one segment of the business.

The fundamental business opportunity changed over the last several months and then the regulatory overlay in kind of an overhang changed as well and I think that just made us decide that it's not the right time for us to enter that business will we ever do you enter that business, it's possible, but we likely do it in connection with other things you might.

I'm trying to do in the <unk> space, but right now where our focus is really on being a great technology provider, helping our clients with their potential for ETF listings bitcoin ETF listings.

Continuing to provide index solutions in the cryptocurrency space.

Great. Thank you.

Thank you.

And I show. Our next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead.

Great. Thanks. Good morning, Thanks for taking my questions I can keep these quick I think.

One on <unk>.

The growth for year over year growth rate.

It has been in the 20% plus area, that's come down to the high teens, but now it's moved back up.

In the second quarter.

To 19% year over year. So I'm wondering are the new sales coming in I know, there's a six to nine months timeline and the tier one and twos, but with orders.

Growth of the tier threes and below do you see this business moving back into a sustainable 20% plus.

Yeah of annual revenue growth over the next couple of quarters.

Well I can't I won't give a projection, but I would say that obviously as the business is going well, but recognize that AFC is a combination of surveillance and verifone and surveillance had a little bit of a slower start of the year and obviously I think it's shown that really great great strengthen in the second quarter, and so theyre going to be ebbs and flows.

That's why we give you more of a range, let me give you an absolute number.

Of that 18% to 23% range, because they're going to be periods of time, where we may be able to speed up as we sign more of the larger deals and then we may have more of a well.

A lull within a quarter or two so.

I would have to say I think that we feel good about the range. We provided you and we're very excited about the strength of showing both all the new sales both within surveillance <unk> in this quarter, but I think Brian . It's just it's going to ebb and flow just a little bit. It is a SaaS business. So it's not going to ebb and flow too much but that's you know that's why we gave you the range Okay. That's super.

And then the follow up just for and I think I heard you say on the power business that it wasn't going to be material overall.

And I heard the 35 and $20 million.

Restate that again in terms of the revenue impact.

The expense.

Impact.

Yeah sure so.

If we're just looking back to 2022 and you look at it on an annual basis, we would expect once we've closed on the sale that we see a reduction in revenues of around $35 million and approximately $20 million reduction in expenses and what we do plan to do starting next quarter is re class that out of the market platform.

And to our corporate and other segments, you'll be able to see that decline.

As at the cell phones.

Okay, great. Thank you.

Thank you.

I am showing no further questions in material at this time I would like to turn the call back over to Athena Friedman Chairman CEO for closing remarks.

Great. Thank you and thanks very much for your time today.

We are excited to continue to update you on all of our progress in our business. While we also prepare for our next chapter with the Denver as part of the <unk> organization.

Thanks for all your questions and I Hope you all have a great day. Thank you bye bye.

This concludes today's conference call. Thank you for participating Goodbye connect.

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