Q3 2023 Nasdaq Inc Earnings Call
Good morning, and welcome to the NASDAQ third quarter 2023 results conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone you will then 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'd now like to hand, the conference over to your first Speaker Akzo Garrett Senior Vice President and Investor Relations Officer. Please go ahead.
Thank you.
Everyone and thank you for joining us today to discuss Nasdaq's third quarter 2023 financial results on 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 and other members of the management team. After prepared remarks, we will open up the line to Q&A.
The press release and earnings presentation are available on our website, we intend to use the website limit of disclosing material nonpublic information and complying with disclosure obligations under SEC regulation FD.
I would like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations and as such constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 actual results may differ materially from these projections information concerning factors that could cause actual results to differ from forward looking.
Statements is contained in our press release and periodic reports filed with the SEC I will now turn the call over to Athena.
Thank you <unk> and good morning, everyone. Thank you for joining us for Nasdaq's third quarter earnings call.
Before I begin I would like to offer a brief comment on the situation in the middle East we.
We were horrified by the acts of terrorist violence that occurred in Israel last week, and we are deeply saddened by the subsequent loss of asset lives Israel, Gaza and the wider region. Our focus has been on supporting our people and our clients with connections in the region. We will continue to monitor the situation closely and stay engaged with them throughout this emerging crisis.
Turning now to my remarks about the quarter I will start by covering Nasdaq's performance and how our strategy is unfolding in the context of the current operating environment as well as provide key business highlights I will then turn the call over to Ann for a detailed review of our financial results I.
I am pleased to share that NASDAQ continues to make solid progress on our strategic objectives to capitalize on the key mega trends shaping the financial system.
Now as that continues to execute against our strategic vision become the trusted fabric of the global financial system, delivering broad based growth across our businesses, including 6% overall net revenue growth and 8% year over year organic revenue growth in our solutions businesses I am proud of the team's efforts to continue to serve our clients and I'm pleased to see our revenue growth improving the <unk>.
Third quarter aided by strong performance in our capital access platforms Division, particularly in our index business. In addition, our anti financial crime Division delivered to continue to deliver strong results with solid growth in our surveillance business.
<unk> continuing to demonstrate strong new customer growth as well as an expansion contract with a tier two clients.
With respect to the market backdrop during the quarter, we saw a variety of cross currents, including increasing market volatility fluctuating equities markets and rising long term interest rates. Nevertheless, we experienced modestly improving momentum in our listings business amid a gradual reemergence of the U S IPO activity with 35 operating.
He is choosing to list on NASDAQ during the quarter.
Based on our client conversations and our growing IPO pipeline, we remain cautiously optimistic on the outlook for the coming the upcoming year.
Across the company as we've discussed before NASDAQ is well positioned to thrive by capitalizing on three key megatrends that are shaping the financial system. The modernization of markets. The development of the corporate and investor ecosystem for environmental sustainability, an increasing need for integrity solutions across the financial system, including risk management surveillance.
Regulatory compliance and anti financial crime technology.
By aligning our business. These key mega trends, we're unlocking attractive opportunities for sustainable growth and we are building a diversified business that is well positioned to succeed through economic cycles.
Unknown Executive: Good morning and welcome to Nasdaq 3rd quarter 2023 results conference call. At this time, all participants aren't to listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you would need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To rejure your question, please press star 1-1 again. Please be advised that today's conference has been recorded.
In this regard I'd like to provide a few highlights from the quarter that illustrate the progress we're making to capitalize on these growth opportunities first our focus on market modernization continues to deliver innovation that enhances our liquidity and underlying market infrastructure that powers the royalty economies.
A major driver of that innovation has been our ability to adopt and leverage technologies, including cloud and artificial intelligence across our markets and in our products.
Ato Garrett: I would now like to hand a conference over to you for a speaker, Ato Garrett, Senior Vice President, and Investor Relations Officer. Please go ahead. Thank you.
In the third quarter, we are pleased to announce the approval by the SEC of the first exchange AI powered order type, which we call dynamic midpoint extended life order or dynamic M. Elo.
Adena Friedman: Good morning, everyone and thank you for joining us today to discuss Nasdaq 3rd quarter 2023 financial results.
For the last several years, we've offered in order type called the midpoint extended life order for clients seeking larger trade sizes at the midpoint. The order introduces a fixed holding period together order interest before execution.
Adena Friedman: On the line, our Adena Friedman, our Chair and Chief Executive Officer, Ann Dennison, our Chief Financial Officer, John Zeka, our Chief Legal, Risk, and Regulatory Officer, another member of the management team. After preparing marks, we open the line to Q&A.
Through extensive testing and consultation we determined that our clients trade execution could be improved under certain market conditions by applying adaptable holding periods. This led to the creation of dynamic and yellow.
Ato Garrett: The press release and earnings presentation are available on our website. We intend to use the website as a means of disclosing material, non-public information, and complying with disclosure obligations under SEC regulation FD. I would like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the private security litigation reform act of 1995. Actual results may differ materially from these projections.
<unk> Leverages AI to adjust the length of holding periods throughout the trading day on a stock by stock basis to improve fill rates and reduced market friction.
We're very excited to rollout this enhanced order types of our clients in the coming months and we see significant opportunity ahead to drive the application of AI and other emerging technologies across our markets.
Ato Garrett: 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 SEC. I will now turn the call over to Adena. Thank you, Ato and good morning, everyone. Thank you for joining us for Nasdaq 3rd quarter earnings call.
Next regarding the development of the environmental sustainable ecosystem during the quarter. We were proud to launch two new offerings designed to help corporates and investors streamline their sustainability journey.
Following the acquisition of Metro last year, we have integrated Nasdaq's, one report and metro sustainability reporting and workflow offerings into a single solution called NASDAQ Metro, which was officially launched during the quarter. NASDAQ material is a SaaS based end to end solution that helps corporate better collect measure and report.
Adena Friedman: Before I begin, I would like to offer brief comments on the situation in the Middle East. We were horrified by the acts of Paris violence that occurred in Israel last week, and we were deeply saddened by the subsequent loss of innocent lives in Israel, Gaza, and the wider region. Our focus has been on supporting our people and our clients with connections in the region. We will continue to monitor the situation closely and stay engaged with them throughout this emerging crisis. Turning now to my remarks about the quarter, I will start by covering Nasdaq's performance and how our strategy is unfolding in the context of the current operating environment as well as provide key business highlights.
Inability data on a single platform.
In addition in our investment intelligence business, we announced the launch of NASDAQ investment ESG analytics, which is designed to help asset managers better quantify and showcase the environmental social and governance impact of our portfolio is positioned in the market.
Adena Friedman: I will then turn the call over to Anne for a detailed review of our financial results. I'm pleased to share that Nasdaq continues to make solid progress on our strategic objectives to capitalize on the key mega trends shaping the financial system. Nasdaq continues to execute against the strategic vision, become the trusted fabric of the global financial system, delivering broad-based growth across our businesses, including 6% overall net revenue growth and 8% year-to-year organic revenue growth in our solutions businesses.
It enables asset managers to demonstrate their portfolio sustainability strategies to asset owners, including pension funds sovereign wealth funds and the dominance.
These two solutions underscore our role as a bridge between corporate and investors by creating market based demand driven solutions that help bring clarity to a rapidly evolving environment for sustainability reporting.
Lastly, looking at the increasing need for integrity solutions, including risk management in anti financial crime technology, we're developing innovations that make our clients anti money laundering or AML programs more efficient.
Adena Friedman: I'm proud of the team's efforts to continue to serve our clients and am pleased to see our revenue growth improving in the third quarter, aided by strong performance in our capital access platforms division, particularly in our index business. In addition, our anti-financial crime division continues to deliver strong results with solid growth in surveillance business and verifints continuing to demonstrate strong new customer growth as well as an expansion contract with a tier 2 client.
Specifically in October we have launched the beta version of the AML workflow co pilot tool that will leverage generative AI to automate portions of our all of our clients AML processes.
We look forward to updating you on our progress with these opportunities in the quarters to come as we continue our journey to leverage technology to advance our clients' evolving needs.
Adena Friedman: With respect to the market backdrop, during the quarter, we saw a variety of cross-currents, including increasing market volatility, fluctuating equity markets, and rising long-term interest rates. Nevertheless, we experienced modestly improving momentum in our listings business amid a gradual reemergence of the US IPO activity with 35 operating companies choosing to lift the Nasect during the quarter. Based on our client conversations and our growing IPO pipeline, we remain cautiously optimistic on the outlook for across the company, as we've discussed before, NASA has well positioned to thrive by capitalizing on three key mega trends that are shaping the financial system, the modernization of markets, the development of the corporate and investor ecosystem for environmental sustainability, and the increasing need for integrity solution to cross the financial system, including risk management, surveillance, regulatory compliance and anti financial crime technology. By aligning our business to these key mega trends, we're unlocking our attractive opportunities for sustainable growth, and we're building a diversified business that's well positioned to succeed through economic cycles.
Turning next to our results I'm pleased to report Nasdaq's continued solid financial performance in the third quarter 2023.
We achieved $940 million net revenues, an increase of 6% compared to the prior year period, an increase of 5% on an organic basis.
Revenues across our solutions businesses were $694 million up 9% from the prior year period, and 8% on an organic basis our.
Our total <unk> increased 6% to $1 billion.
Annualized SaaS revenues totaled $773 million in the third quarter, which represents an annual growth rate of 11%.
Our SaaS revenue is now comprised 37% of total company IRR.
And our capital access platforms Division, we delivered $456 million in total revenue in the third quarter, an 8% increase from the prior year period.
Our index revenues grew 15% from the prior year period. The performance in our index business reflects strong year over year market performance $24 billion in net inflows over the past 12 months, including $5 million in the third quarter and strong futures capture partially offset by lower derivatives volumes.
Adena Friedman: In this regard, I'd like to provide a few highlights from the quarter that illustrate the progress we're making to capitalize on these gross opportunities. First, our focus on market modernization continues to deliver innovation that enhances the liquidity and underlying market infrastructure that powers the world's economies. A major driver of that innovation has been our ability to adopt and leverage technologies, including cloud and artificial intelligence across our market and in our products.
Our workflow and insights revenues grew 5% over the prior year period, reflecting sustained demand for project work in our ESG solutions and steady analytics solutions sales to asset managers.
While we continue to see elongated sales cycles for certain products in this business.
<unk> seen a material improvement or worsening of sales cycles from the second quarter of 2023.
Adena Friedman: In the third quarter, we are pleased to announce the approval by the FCC of the first exchange AI-powered order type, which we call dynamic midpoint extended life order or dynamic MELO. For the last several years, we've offered an order type called the midpoint extended life order for clients seeking larger trade sizes at the midpoint. The order introduces a fixed holding period to gather order interest before execution. Through extensive testing and consultation, we determined that our client's trade execution could be improved under certain market conditions by applying adaptable holding periods. This led to the creation of dynamic MELO, which leverages AI to adjust the length of a holding period throughout the trading day on a stock by stock basis to improve fill rates and reduce market friction.
Our data and listing services revenues grew 5%.
Listings revenues was largely unchanged due to continued muted IPO activity and heightened de listings, while our data business delivered continued strong revenue growth driven.
Driven by demand from international data clients.
We maintained our track record for winning new operating company listings ending the quarter with strong momentum from some of the year's biggest ipos by proceeds raised year to date, NASDAQ welcomed 83, new operating company Ipos for an 84% win rate.
As of the end of the third quarter, we have welcomed four of the five top ipos by capital raised and in the third quarter. We achieved an overall win rate of 95% and welcomed several marquee ipos, including arm holdings and hence the cart.
Momentum was also bolstered by several notable listing switches to NASDAQ in the quarter, including door Dash and Roper technologies.
Adena Friedman: We're very excited to roll out this enhanced order type to our clients in the coming months, and we see a significant opportunity ahead to drive the application of AI and other emerging technologies across our markets. Next, regarding the development of the environmental sustainable ecosystem, during the quarter, we were proud to launch two new offerings designed to help corporate and investors streamline their sustainability journeys. Following the acquisition of Metro last year, we have integrated NASDAQ's one report and Metro sustainability reporting and workflow offerings into a single solution called NASDAQ Metro, which was officially launched during the quarter.
Overall 11 companies have transferred to now secure to date, representing a total market value of $184 billion.
Adena Friedman: NASDAQ Metro is a SaaS based end-to-end solution that helps corporates better collect, measure, and report sustainability data on a single platform. In addition, in our investment intelligence business, we announced the launch of NASDAQ Investment ESG Analytics, which is designed to help asset managers better quantify and showcase the environmental, social, and or governance impact of our portfolio's position in the market. It enables asset managers to demonstrate their portfolio sustainability strategies to asset owners, including pension funds, sovereign wealth funds, and endowments. These two solutions underscore our role as a bridge between corporate and investors by creating market-based demand-driven solutions that help bring clarity to a rapidly evolving environment for sustainability reporting.
The September lifting success coincides with the launch of our new IPO in broadcast center at the NASDAQ market site in times square further establishing NASDAQ as the world's premier venue for listings there.
The re imagine space reflects our commitment to showcasing our clients and elevating their IPO experience and enables us to create more visibility for first trade celebrations through increased access to global media outlet.
Outlets.
Ahead, we remain well positioned to capture new listings activity, we have a strong pipeline of companies that are committed to NASDAQ and are in close contact with these companies as they evaluate their IPO timelines.
Turning next to our market platforms Division, we delivered $381 million in total revenue during the third quarter, a 1% increase over the prior year period, and our trading business revenues declined 1%.
Compared to the prior year with lower European revenue, partially offset by modest growth in U S equities revenue due to higher revenue capture and a small FX benefits.
And our market technology business, our marketplace technology business revenue grew 4% with growth in both trade management services and market technology solutions.
Adena Friedman: Lastly, looking at the increasing need for integrity solutions, including risk management and anti-financial crime technology, we're developing innovations that make our clients anti-money laundering or AML programs more efficient. Specifically, in October, we have launched the beta version of an AML workflow co-pilot tool that will leverage generative AI to automate portions of our client's AML processes. We look forward to updating on our progress with these opportunities in the quarters to come as we continue our journey to leverage technology to advance our client's evolving needs.
During the period, we completed delivery of a major CSD project for our Latin American Central Securities Depository and signed a contract extension, including an upgrade to our next Gen trading system with one of the largest stock exchanges in southeast Asia.
Turning next to a brief update on a delta we're progressing well towards the closing of the announced the transaction. We have completed the antitrust review and Thoma Bravo is on track to obtain the remaining approvals from the Nordic and Baltic financial regulators can become a major shareholder in NASDAQ. Therefore, we expect to close the transaction in the fourth quarter of 2023.
Adena Friedman: Turning next to our results, I'm pleased to report Nasdaq's continued solid financial performance in the third quarter of 2023. We achieved $940 million in net revenues, an increase of 6% compared to the prior year period, an increase of 5% on an organic basis. Revenues across our solutions businesses were $694 million, of 9% from the prior year period, and 8% on an organic basis. Our total ARR increased 6% to $2.1 billion, annualized fast revenues totaled $773 million in the third quarter, which represents an annual growth rate of 11%.
As pre released previously disclosed this business will be reported as part of the newly created financial Technology Division alongside our marketplace technology in anti financial crime businesses.
In the third quarter <unk> continued its strong performance delivering constant currency <unk> growth in the high teens.
Year to date through the third quarter. They added 17, new clients and three total cross sells which compares to seven new clients and three cross sells over the same period last year.
Additionally, <unk> maintained solid gross and net revenue retention at 97, 4% and 113% respectively.
Adena Friedman: Our staff revenue is now comprised 37% of total company ARR. In our castle access platform division, we delivered $456 million in total revenue in the third quarter, an 8% increase in the prior year period. Our index revenue grew 15% from the prior year period. The performance in our index business reflects strong year-rear market performance, $24 million in net inflows over the past 12 months, including $5 million in the third quarter, and strong futures capture partially offset by lower derivative volumes.
We're also pleased with the momentum of a dentist journey towards a cloud based delivery of our solutions across both existing and new clients through the first three quarters of 2023, 55% of bookings have been for cloud delivery solutions versus 27% over the same period last year.
Since the transaction was announced in June we've held extensive integration and planning discussions with the leadership team at Delta and we're very excited about the opportunities ahead as a result of our early interactions together, we have developed a very clear path in process for integration that we intend to execute successfully starting on day, one post close.
Adena Friedman: Our workflow and insights revenues grew 5% over the prior year period, reflecting sustained demand for project work and our ESG solutions and study analytic solution sales to asset managers. While we continue to see elongated sales cycles for certain products in this business, we've not seen a material improvement or worsening of sales cycles from the second quarter of 2023. Our data and listing services revenues grew 5%. Our listing revenues was largely unchanged due to continued muted IPO activity and heightened D listings, while our data business delivered continued strong revenue growth driven by demand from international data clients.
Finally, turning to our anti financial crime Division, we delivered $93 million in total revenue during the third quarter, a 21% increase in the prior year period now.
<unk> grew 29%, primarily driven by growth in the adoption of our fraud and anti money laundering or friendly solutions by small and medium sized banks as well as an expansion of wallet share among existing clients. We continue to expand client relationships with 47, new small medium sized financial institutions adopting our <unk> solution.
Yeah.
Adena Friedman: We maintained our track record for winning new operating company listings, ending the quarter with strong momentum from some of the year's biggest IPO's by proceeds raised. Year to date, NASA welcomed 83 new operating company IPOs for an 84% win rate. As of the end of the third quarter, we welcomed four of the five top IPOs by capital raised, and in the third quarter, we achieved an overall win rate of 95%, and welcomed several marquee IPOs, including arm holdings and Instacart. This momentum was also bolstered by several notable listings, switches to NASA in the quarter, including DoorDash and Roper technologies. Overall, 11 companies have transferred to NASA to date, representing a total market value of $184 billion.
Additionally, we continue to have momentum in our move up market. This quarter, we signed an expansion agreement with an existing tier two bank clients.
Specifically this is a bank clients that signed onto our fraud detection and workflow solution in the first quarter of 2023 and has now expanded their relationship with US to include our complex investigation solution.
We view this expansion is a strong proof point in our ability to land and expand our relationships with large bank clients.
We continue to be actively engaged in contract negotiations and proof of concepts with several tier one and tier two banks and remain on track with our plans to sign additional large banks in the coming quarters.
Our surveillance business delivered 9% organic revenue growth with continued new customer growth, including tier three banks and retail brokers as we expanded our leadership position with large customers.
Adena Friedman: The September listing success coincides with the launch of our new IPO and Broadcast Center at NASA's MarketSight in Times Square, further establishing NASA as the world's premier venue for listings. The reimagined space reflects our commitment to showcasing our clients, and elevating their IPO experience, and enables us to create more visibility for first trade celebrations to increase access to global media outlets.
And lastly, I am pleased to announce that we've officially named Brendan Brothers Executive Vice President of our anti financial crime Division.
As you May recall, Brendan was named to the role on an interim basis earlier this year and we're thrilled to welcome him formally as a member of our leadership team continuing to report directly to me.
To wrap up our third quarter results demonstrate the strength of our diversified business and reflect our strong position going into year end with the closing of the Identa transaction view and with that I'll now turn the call over to Ann to review our financial details. Thank.
Adena Friedman: Looking ahead, we remain well positioned to capture new listings activity. We have a strong pipeline of companies that have committed to Nasdaq and are in close contact with these companies as they evaluate their IP timelines. Turning next to our market platforms division, we deliver $381 million in total revenues during the third quarter, a 1% increase over the prior year period. In our trading business, revenues declined 1% compared to the prior year with lower European revenue.
Thank you Regina and good morning, everyone.
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 the fall.
Adena Friedman: Partially offset by modest growth in U.S, equities revenue due to higher revenue capture and a small FX benefit. In our market technology business, a marketplace technology business revenue grew 4% with growth in both trade management services and market technology solutions. During the period, we completed delivery of a major CSD project for a Latin American Central Security Suppository and signed a contract extension, including an upgrade to our next-gen trading system with one of the largest stock exchanges in Southeast Asia.
And in the financials section of our Investor Relations website at IR NASDAQ Dot com.
I will start by reviewing third quarter 2023 performance beginning on slide 11 of the presentation.
The 6% increase in reported net revenue of $940 million is the net result of organic growth of 5%, including an 8% organic increase in the solutions businesses and slightly lower trading services revenue and $3 million and net positive impact from changes in FX rates and.
Adena Friedman: Turning next to a brief update on Adenza, we're progressing well towards the closing of the Adenza transaction. We've completed the anti-trust review, and Talma Bravo is on track to obtain remaining approvals from the Nordic and Baltic financial regulators to become a major shareholder in Nasdaq.
Acquisitions and divestitures.
Moving to operating profit and margin non-GAAP operating income increased 4%, while the non-GAAP operating margin of 52% was down approximately 90 basis points from the prior year period.
Adena Friedman: Therefore, we expect to close the transaction in the fourth quarter of 2023. As previously disclosed, this business will be reported as part of the newly created financial technology division alongside our marketplace technology and anti-financial crime businesses. In the third quarter, Adenza continued its strong performance, delivering constant currency ARR growth in the high teams. Year-to-date through the third quarter, they added 17 new clients and three turtle cross-cells, which compares to seven new clients and three cross-cells over the same period last year.
non-GAAP net income attributable to NASDAQ was $349 million or <unk> 71 per diluted share compared to $335 million or <unk> 68 cents per diluted share in the prior year period.
Turning to slide 12, as Dana mentioned earlier <unk> totaled $2 1 billion, an increase of 6% from the prior year period.
Annualized SaaS revenue totaled $773 million, an increase of 11%.
Air and SaaS revenue growth in the quarter reflects broad based growth led by continued bookings strength and our anti financial crime Division.
Adena Friedman: Additionally, Adenza maintained solid growth and net revenue retention at 97.4% and 113% respectively. We're also pleased with the momentum of Adenza's journey towards a cloud-based delivery of the solutions across both existing and new clients. Through the first three quarters of 2023, 55% of bookings have been for cloud delivery solutions versus 27% over the same period last year. Since the transaction was announced in June, we've held extensive integration and planning discussions with the leadership team at Adenza, and we're very excited about the opportunities ahead. As a result of our early interactions together, we have developed a very clear path and process for integration that we intend to execute successfully starting on day one post-close.
We are delivering solid performance despite ongoing elongated sales cycles in certain areas of our workflow and insights business similar to recent quarters.
We're working closely with our customers and the parent.
Certain macroeconomic environment.
Indicating well on our strategic pillars of bringing liquidity transparency and integrity to financial market.
I will now review quarterly Division results on slide 13 through 15.
Starting with the market platforms division revenues increased $2 million or 1% driven by positive impact from changes in FX rates.
Adena Friedman: Finally, turning to our anti-financial crime division, we delivered $93 million in total revenue during the third quarter, a 21% increase in the prior year period. Now, as I've been through 29% primarily driven by growth in the adoption of our fraud and anti-money laundering or framel solutions by small and medium-sized banks, as well as an expansion of wallet share among existing clients. We continue to expand client relationships with 47 new small, medium-sized financial institutions adopting our framel solutions.
Trading services organic revenue was down 2% driven by lower European trading revenues due to lower volumes.
Despite better cash equity revenue capture that will offset largely flat U S revenues.
While we have seen an increase in op exchange trading, which is a which is common in a lower volatility environment nasdaq's share of available volume has remained steady.
In markets like technology, we delivered 3% organic revenue growth, reflecting solid revenue growth in our market technology business.
Adena Friedman: Additionally, we continue to have momentum in our move up market. This quarter, we signed an expansion agreement with an existing tier two bank client. Specifically, this is a bank client that signed on to our fraud detection and workflow solution in the first quarter of 2023, and has now expanded their relationship with us to include our complex investigation solution. We view this expansion as a strong proof point in our ability to land and expand our relationships with large bank clients.
As a reminder, marketplace technology revenue growth in the first half of the year benefited from testing revenue and a large project delivery that we don't expect to recur in the second half of the year.
We continue to expect full year revenue growth for marketplace technology to be at the upper end of our medium term outlook.
<unk> totaled $511 million, an increase of 2% compared to the prior year period.
Adena Friedman: We continue to be actively engaged in contracting negotiations and proofs of concepts with several Tier 1 and Tier 2 banks and remain on track with our plans to sign additional large banks in the coming quarters. Our surveillance business delivered 9% organic revenue growth with continued new customer growth, including Tier 3 banks and retail brokers as we expand on our leadership position with large customers.
Growth rate is lower compared to prior periods due to slower trade management services growth, resulting from near term market conditions.
Market platforms operating margin was 52% in the third quarter of 2023, representing representing a 370 basis point decrease from the prior year period due to lower revenue, resulting from lower European trading activity as well as higher compensation costs ongoing investments related to migrating U S markets to the.
Adena Friedman: And lastly, I'm pleased to announce that we've officially named Brendan Brothers Executive as president of our anti-financial crisis. As you may recall, Brendan was named to the role in an interim basis earlier this year, and we're thrilled to welcome him formally as a member of our leadership team continuing to report directly to me.
<unk> and investment in new growth opportunities in marketplace technology.
Turning to capital access platforms revenues increased $34 million or 8%, reflecting organic revenue growth of $32 million and a $2 million positive impact from changes in FX rates.
Adena Friedman: To wrap up, our third quarter results demonstrate the strength of our diversified business and reflect our strong position going into your end with the closing of the identity transaction view.
We delivered broad based organic growth in the third quarter driven by strong performance in index.
Ann Dennison: And with that, I'll now turn the call over to Anne to review our financial details. Thank you, Adina. Good morning, everyone. Turning to this quarter's results, my commentary will primarily focus on our non-gap results and all comparisons will be to the prior year period, almost otherwise noted. Reconciliation of US gap to non-gap results can be found in our press release as well as in a file located in the financial section of our investor relations website at ir.nasaq.com.
Revenue increased 15% compared to the third quarter of 2022, primarily driven by a 22% increase in average AUM over the prior year quarter.
Licensing revenues for futures contracts linked to the NASDAQ100 index increased 14%, reflecting higher pricing per contract, partially offset by a decline in trading volumes.
Additionally, we saw net inflows over the trailing 12 months of $24 billion.
Ann Dennison: I will start by reviewing third quarter 2023 performance beginning on slide 11 of the presentation. The 6th percent increase in reported net revenue of $940 million is the net result of organic growth of 5% including an 8% organic increase in the solutions businesses and slightly lower trading services revenue and $3 million in net positive impact from changes and effects rates and acquisitions and investors. Moving to operating profit and margins, non-gap operating income increased 4% while the non-gap operating margin of 52% was down approximately 90 basis points from the prior year period.
Including $5 billion in the quarter.
While <unk> has benefited from a strong year strong year to date market performance, we saw AUM impacted by overall markets trending lower in the last two months of the quarter.
Moving to data and listing services our revenue grew 5%.
Excluding the positive impact from changes in FX FX rates organic growth was 4%.
Revenue growth reflects continued strength in our data business and the combined impact of de listings and a more muted IPO environment on listings revenue growth.
However, as Dana mentioned, we have seen several type profile initial listings and 11 switches year to date.
Ann Dennison: Non-gap net income attributable to NASDAQ was $349 million or 71 cents per diluted share compared to $335 million or 68 cents per diluted share in the prior year period. Training to slide 12, as Adina mentioned earlier, ARR totaled $2.1 billion an increase of 6% from the prior year period while annualized fast revenues totaled $773 million an increase of 11%. ARR and fast revenue grows in the quarter reflects broad-based growth led by continued booking strength in our anti-financial crime division. We are delivering solid performance despite ongoing elongated sales cycles in certain areas of our workflow and insights business similar to recent quarters.
Workflow and insights revenue increased 5% organically compared to the third quarter of 'twenty two.
Collecting growth across our ESG and analytics businesses. Despite ongoing you won't get it sales cycles with corporate particularly for IR tools.
And for our asset owner portfolio management solutions affecting revenue growth in the third quarter.
Ara for capital access platform totaled $1 2 billion, an increase of 4% compared to the prior year period.
Our growth related to our data products remains solid the capital excess platforms are our growth rate has been impacted by forward listings growth and the impact of continuing elongated sales cycle on parts of our corporate solutions and analytics businesses.
Ann Dennison: We are working closely with our customers in the current uncertain macro economic environment and are executing well in our strategic colors of bringing liquidity transparency and integrity to financial markets.
Division operating margin was 56% in the third quarter of 2023, an increase of roughly 50 basis points from the prior year period.
Ann Dennison: I will now review quarterly division results on slide 13 through 15. Starting with the market platforms division, revenues increased $2 million or 1% driven by positive impact from changes in affects rates. Trading services organic revenue was down 2%, driven by lower European trading revenues due to lower volume. Williams, despite better cash equity revenue capture that offset largely flat US revenues. While we have seen an increase in off exchange trading, which is common in a lower volatility environment, now the next share of available volume has remained steady.
Okay.
Anti financial crime revenue increased $16 million or 21% compared to the third quarter of 2022.
<unk> growth reflects robust demand for fraud detection and anti money laundering solutions as well as our SaaS based surveillance solutions, our fraud detection and AML solutions revenues grew 29% compared to the third quarter of 2022 surveillance revenues grew 9% compared to the third quarter of 'twenty two with continued cut.
Tumor growth, including tier three banks and retail brokers.
These new customer wins reflect our ability to drive growth beyond our leadership position with large banks and expand into new customer segments.
Ann Dennison: In Marketplace technology, we delivered 3% organic revenue growth reflecting solid revenue growth in our market technology business. As a reminder, Marketplace technology revenue growth in the first half of the year benefited from testing revenue and a large project delivery that we don't expect to recur in the second half of the year. We continue to expect full year revenue growth from Marketplace technology to be at the upper end of our medium term outlook.
Ara for anti financial crime totaled 300, $348 million, an increase of 18% compared to the prior year period.
<unk>, which also includes <unk> for new contracts signed but not yet commenced.
$381 million, an increase of 19% versus the prior year period.
The anti financial crime Division operating margin was 33% in the third quarter of 2023 versus 27% in the prior year period with approximately one half of the margin growth, resulting from the timing of recognition of incentive compensation.
Ann Dennison: ARR totals $511 million, an increase of 2% compared to the prior year period. This growth rate is lower compared to prior periods due to slower trade management services growth, resulting from near term market conditions. Market platforms operating margin was 52% in the third quarter of 2023, representing a 370 basis point decrease from the prior year period due to lower revenue resulting from lower European trading activity, as well as higher compensation costs, ongoing investments related to migrating US markets to the cloud, and investment in new growth opportunities in Marketplace technology.
Turning to page 16 to review, both expenses and guidance non-GAAP operating expenses increased $32 million to $449 million the.
The increase primarily reflects a $32 million organic increase or 8%.
Organic year over year increase reflects increased compensation and benefits expense due primarily to increased head count and the impact of merit increases higher technology spend attributable to continued investment in our business and higher G&A expense.
Ann Dennison: According to capital access platforms, revenues increased $34 million or 8%, reflecting organic revenue growth of $32 million, and a $2 million positive impact from changes in FX rates. We delivered broad based organic growth in the third quarter driven by strong performance in index. Index revenue increased 15% compared to the third quarter of 2022, primarily driven by a 22% increase in average AUM over the prior year period. Licensing revenues for future contracts linked to the NASDAQ 100 index increased 14%, reflecting higher pricing per contract, partially offset by a decline in trading volume.
We are narrowing our 2023 non-GAAP operating expense guidance to $175 billion.
1.815 billion.
Which is a $10 million reduction to the top end of the guidance range.
As a result, the midpoint of the updated expense guidance range is $5 million lower than our prior guidance, which reflects an annual expense increase of approximately four 5% for 2023.
Assuming stable performance in exchange rates. We currently expect 2023 expenses to be near the middle of the updated guidance range.
Ann Dennison: Additionally, we saw in net inflows over the trailing 12 months of $24 billion, including $5 billion in the quarter. While AUM has benefited from a strong year to date market performance, we saw AUM impacted by overall markets trending lower in the last two months of the quarter. Moving to data and listing services, our revenue grew 5%, excluding the positive impact from changes in FX rates or organic growth was 4%. Revenue growth reflects continued strength in our data business and the combined impact of the listings, and a more muted IPO environment on listings revenue growth.
Additionally, we narrowed our full year non-GAAP tax rate guidance.
Range from 24% to 26% to a range of 24 and a half to 25, 5% we expect to come in.
At or around the midpoint of this updated range for the full year.
Turning to slide 17, excluding.
Excluding a tender related debt our adjusted adjusted total debt to trailing 12 months non-GAAP EBITDA ratio ended the period at two four times down from two six times at the end of the second quarter of 2023.
Ann Dennison: However, as Adina mentioned, we have seen several high profile initial listings and 11 switches here today. Workflow and insights revenue increased 5% organically compared to the third quarter of 22, reflecting growth across our EST and analytics businesses, despite ongoing elongated sales cycles with corporates, particularly for IR tools, and for our asset owner portfolio management solutions, affecting revenue growth in the third quarter. Error for capital access platforms to $1.2 billion, an increase of 4% compared to the prior year period.
During the quarter, we paid common stock dividends in the aggregate of $108 million and in September Our board approved an increase to our share repurchase authorization to a total of $2 billion.
Our balance sheet remains solid and our cash flow generation is strong, including $1 6 billion of free cash flow on a trailing 12 month basis.
We remain well positioned to support organic growth execute on the deleveraging plan, we announced with the <unk> acquisition increase our dividend payout ratio over time and repurchase shares to minimize dilution.
In closing today Nasdaq's third quarter results reflect a continuation of the companys ability to perform consistently well across a wide range of operating environments. Thank.
Ann Dennison: While error growth related to our data products remains solid, the capital access platforms Error Growth Rate has been impacted by slower listings growth and the impacts of continuing elongated tail cycles on parts of our corporate solutions and analytics businesses. A division operating margin was 56% in the third quarter of 2023, an increase of roughly 50 basis points from the prior year period. Anzac Financial Crime Revenue increased $16 million or 21% compared to the third quarter of 2022.
Thank you for your time, and I will turn it back over to Athena.
Thank you ma'am and before we turn to Q&A I would like to take a moment to acknowledge and awesome. After eight years at NASDAQ and will be stepping down from her role as CFO at the end of this year.
And has been a guiding voice to the market on our financial performance a leader in enhancing our Investor relations and ESG reporting efforts and as Stuart to our company's transformation. Most recently through our announced acquisition of a Denver.
Ann Dennison: Growth reflects robust demand for fraud detection and anti-money laundering solutions as well as our SaaS based surveillance solutions. Our fraud detection and AML solutions revenues grew 29% compared to the third quarter of 2022. Surveillance revenues grew 9% compared to the third quarter of 22 with continued customer growth including tier 3 banks and retail brokers. These new customer wins reflect our ability to drive growth beyond our leadership position with large banks and expand into new customer segments.
In conjunction with Anne's upcoming departure from NASDAQ. We're pleased to welcome Sarah Young widows are next EVP and CFO .
Sir will join us from UBS group, where she served as CFO in the group and our group Executive Board member.
Sarah will officially join us on December one.
And we will work closely with and in the team to ensure a seamless transition.
I want to thank and personally for her many contributions to NASDAQ. She has been a phenomenal partner to me and the company and we wish her the very best and now I will turn the call back over to the operator for Q&A.
Ann Dennison: Error for anti-financial crime total $348 million an increase of 18% compared to the prior year period. Signed Error which also includes Error for new contracts signed but not yet commenced total $381 million an increase of 19% versus the prior year period. The Anti-financial Crime Division operating margin was 33% in the third quarter of 2023 versus 27% in the prior year period with approximately one half of the margin growth resulting from the timing of recognition of incentive compensation.
Thank you.
As a reminder to ask a question you would need to press star one one on your telephone.
Your question. Please press star one again.
We ask that you. Please 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 more questions.
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And I show. Our first question comes from the line of Michael Cho from Jpmorgan. Please go ahead.
Hi, good morning, Thanks for taking my question.
Wanted to touch on.
Ann Dennison: Turning to page 16 to review both expenses and guidance. Non-gov operating expenses increased $32 million to $449 million. The increase primarily reflects a $32 million organic increase or 8%. The organic year-over-year increase reflects increased compensation and benefits expense due primarily to increased and the impact of merit increases. Higher technology spend is attributable to continued investment in our business and higher GNA expense. We are narrowing our 2023 non-gap operating expense guidance to $1.785 billion to $1.805 billion which is a $10 million reduction to the top end of the guidance range.
My first question I think.
You talk to the update and I think you mentioned it but.
I'll also just hoping you can talk about.
For both acumen calypso.
Year to date revenue growth trends.
For both of the segments and then and then related to that just hoping you can touch on kind of the revenue opportunity revenue growth opportunity.
As you think about clients going from on the.
Cloud solutions for example.
Great. Thank you well, we don't provide a breakout.
<unk> financial the revenue differences between axiom Hassan and Calypso, but we do provide I can give you some color and that's when we're looking at new bookings for the year. We had as I mentioned, we have 17, new clients. So far in 2020 or I should say they have <unk>.
Ann Dennison: As a result, the midpoint of the updated expense guidance range is $5 million lower than our prior guidance which reflects an annual expense increase of approximately 4.5% for 2023. Assuming stable performance and exchange rates we currently expect 2023 expenses to be near the middle of the updated guidance range. Additionally we narrowed our full year non-gap tax rate guidance range from 24 to 26% to a range of 24.5 to 25.5%. We expect to come at or around the midpoint of this updated range for the full year.
17, new clients, so far in 2023, and three cross sells and when will you break that out between Calypso and axiom. So calypso had nine new client sign up and one on <unk>.
Cross sell and actually about eight new clients clients sign up and to cross sells and then in terms of the up sells 95 total and it's really a good even split 55, upsells and calypso and 40% axiom. So it's really a nice split of revenue growth and opportunity across both of those solutions when we think about.
Why that is the case I think that there are a range of reasons just trends out in the marketplace that are driving demand for both risk management solutions for advanced science and solutions for all across all asset classes as well as better regulatory reporting solutions and obviously those are the two great things that eclipse Maxim do.
Ann Dennison: Turning to slide 17. Excluding Adena-related debt, our adjusted total debt to trailing 12 months non-gap evasoratio ended the period at 2.4 times, down from 2.6 times at the end of the second quarter of 2023. During the quarter, we paid common stock dividends in the aggregate of $108 million, and in September, our board approved an increase to our share repurchase authorization to a total of $2 billion. Our balance sheet remains solid, and our cash flow generation is strong, including $1.6 billion of free cash flow on a trailing 12 month basis. We remain well positioned to support organic growth, execute on the leveraging plan we announced with the Adena acquisition, increase our dividend payout ratio over time, and repurchase shares to minimize delusion.
And when we think about that acceleration of new sales because they had seven new sales new client sign up last year versus 17 this year.
Definitely seeing a momentum in terms of the regulatory obligations that are coming into United States as well as the Basel III and game, that's really coming across both the U S and Europe driving certain demand, but then also.
Moving down market I mean, I think axiom to a really nice job.
And even more banks and brokers into their into their solution. So generally it's just.
We're very pleased with the continued momentum in the business when it comes to cloud, it's really interesting to see as I mentioned, the 55% of total bookings were for cloud or I'm, sorry, new bookings were for cloud delivered solutions versus 27% I think it was last year and that's really I think a combination of two things one is the fact that.
Ann Dennison: In closing today, Nasdaq's third quarter results reflect the continuation of the company's ability to perform consistently well across a wide range of operating environments.
Thanks are more ready to accept cloud delivered solutions and so that's been a real we've seen that across all of our all of our solutions across NASDAQ Theyre, just more ready to have cloud being a big part of their infrastructure and they are trying to track. Some banks are purposely trying to move out of their data centers and then the second is that the cloud based delivery solution.
Adena Friedman: Thank you for your time, and I will turn it back over to Adena.
Adena Friedman: Thank you, Ann, and before we turn to Q&A, I would like to take a moment to acknowledge Ann Dinesden. After eight years at Nasdaq, Ann will be stepping down from her role as CFO at the end of this year, and has been a guiding voice to the market on our financial performance, a leader in enhancing our investor relations and ESG reporting efforts, and a steward to our company's transformation, most recently through our Nasdaq acquisition of Adena.
<unk>, our modern modular they're more flexible and I think that the team has done a really nice job of selling the benefits of that and you're right in terms of the revenue opportunity. There is a revenue uplift when we are able to sell our cloud module because we the time managed service provider and that takes away cost from on their side for managing an on Prem so.
Adena Friedman: In conjunction with Ann's upcoming departure from Nasdaq, we're pleased to welcome Sarah Youngwood as our next EVP and CFO. Sarah will join us from UBS group where she served as CFO and a group executive board member. Sarah will officially join us on December 1st, and we'll work closely with Ann and the team to ensure a seamless transition.
<unk>. So we are able to charge for that we haven't discussed what that means in terms of revenue uplift, but the one thing just to recognize also is that from a GAAP perspective cloud right. If revenue is recognized ratably over the life of the contract, whereas if the on Prem revenue is.
Adena Friedman: I want to thank Ann personally for her many contributions to Nasdaq.
Unknown Executive: She's been a phenomenal partner to me and the company, and we wish her the very best, and now I'll turn the call back over to the operator for Q&A. Thank you. As a reminder to ask a question, you would need to press star 11 on your telephone. To withdraw your question, please press star 11 again. We ask that you please 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 more questions. Please stand by while we compile the Q&A roster.
Theres more revenue recognized upfront. So this will create more stability in revenue going forward as well.
Okay, great. Thanks for thanks for all the color there.
If I could just switch gears a little bit for my second question I just wanted to touch on tariffs and I mean, it seems like correct me if growth is accelerating there I'm just I'm just curious the types of conversations that FX.
Yes that could happen with clients there I mean do you get the sense that the SMB clients are tightening budgets are expanding budgets for these types of solutions and Paragon.
Michael Cho: And I sure offer a question. Comes from the line of Michael Cho from JP Morgan. Please go ahead. Hi, good morning. Thanks for taking my question. I just wanted to touch on and bend that for my first question.
I would say that every bank is facing more and more challenges of fraud and AML. So the fraud side. It's just a pure it's a very easy return on investment calculus, because they are losing money to fraud.
Adena Friedman: I think you know, you talk to the update, and I think you mentioned the AIR, but can you also just, hoping you can talk about, you know, for both Axiom and Calisso, the year-to-date revenue growth trends for both of the segments, and then you know, the revenue opportunity or revenue growth opportunity, as you think about clients going from on time to put a cloud solution for them. Thanks. Sure, great. Thank you.
And they have to and when they make their clients got on something that's happened in our accounts. So it's you know.
A really nice clear return on invested capital when they come in and leverage our solutions. Additionally, it is a cloud based solution. So they're having to make less of an upfront investment from an infrastructure perspective.
And so it's a it's a cleaner kind of frankly commitment to US and then lastly, as we do a really good job onboarding clients and south, particularly small to medium banks, we have amazing machine to two on brokers clients and bring them up to up and to the system very quickly for the large scale banks were working really well with them.
Adena Friedman: Well, we don't provide a breakout, the financial, the revenue differences between Axiom and Calisso, but we do provide, I can give you some color in that when we're looking at new bookings for the year, we had, as I said, have 17 new clients so far in 2023 and three cross-cells, and when we break that out between Calisso and Axiom, so Calisso had nine new clients sign up and one cross-cell and axiom had eight new clients sign up and two cross-cells. And then in terms of the upsells, 95 total, and it's really a good even split, 55 upsells and Calisso and 40 in Axiom.
To integrate our implement and integrate these solutions and as you can see we did have that one expansion.
Expansion contract with the clients had just signed out perhaps in the beginning of the year survey. They took our solution we've been able to implement it and immediately started realizing that they wanted more capabilities from us with the complex investigations. So we see really good opportunity to expand.
On the AML side, it's a matter of just a lot of regulatory pressure and frankly, the banks really having a true interests and just making sure. They do not have that type of my laundry going through their systems and so again, it's an increasing threat. It's become more complex our systems are more advanced and many others, we use a lot of AI.
Adena Friedman: So it's really a nice split of a revenue growth and opportunity across both of these solutions. You know, when we think about why that is the case, I think that there are a range of reasons, you know, just friends out in the marketplace that are driving demand for both risk management solutions, for advanced risk management solutions, for all across all asset classes, as well as better regulatory reporting solutions. And obviously, there's a bit too great things that Eclipse and Axiom do.
Adena Friedman: And when we think about that acceleration of new sales, because they had seven new sales, new clients sign up last year versus 17 this year, we're definitely seeing a momentum in terms of the regulatory obligations that are coming into the United States, as well as the basil-free endgame that's really coming across both the US and Europe driving certain demands. But then also moving down market, I mean, I think Axiom did a really nice job of bringing in even more banks and brokers into their into their solution.
In the algorithms to root out criminals, we're able to show much many fewer false positives and more more activity all found but then our competitors and it's just driving a lot of good conversations and demands. So we're.
I really do think also the last thing I would say, it's really interesting I go to these conferences I have gone to meetings with small banks.
And I have had banks come up to me and say <unk> is by far their favorite partner.
They find that we're a really good partner and they use that word as opposed to vendor.
And I think that that's really a testament to the great service that the Verifone team provides the clients.
Great. Thank you so much you didn't.
Sure.
Thank you.
And I show. Our next question comes from the line of Carl's voice from K B W. Please go ahead.
Michael Cho: So generally, we're very pleased with the continuing momentum in the business. When it comes to cloud, it's really interesting to see, you know, they, as I mentioned, that 55% of total bookings were for cloud, sorry, new bookings were for cloud deliver solutions versus 27% I think was last year. And that's really, I think, a combination of two things. One is the fact that banks are more ready to accept cloud deliver solutions.
Hi, good morning.
So now that you have line of sight to deal closure.
A bit more clarity on the interest rate environment, and where your stock is trading just wanted to revisit the topic of capital allocation. After the deal closure, how should we think about capital priorities, specifically on deleveraging versus buybacks post deal closure and is there any framework you can provide for maybe level of buybacks anticipated for a spin.
Michael Cho: And so that's been a real, we've seen that across all of our, all of our solutions across Nasdaq. They're just more ready to have cloud be a big part of their infrastructure and they're trying to, they're trying, you know, some banks are purposely trying to move out of their data centers. I think that the second is that the cloud-based delivered solutions are modern, they're modular, they're more flexible. And I think that the team is done a really nice job of selling the benefits of that.
Civic period post deal closure that could kind of help frame the mix there.
Great.
Hi, Kyle.
Absolutely. So as we think about post deal closure, obviously, where we will evaluate the market conditions from a share repurchase perspective, but in terms of our capital priorities first and foremost we are.
Michael Cho: And you're right in terms of the revenue opportunity, there is a revenue uplift when we are able to sell a cloud module because we become managed service provider. And that takes away costs from on their side from managing an on-prem solution. So we are able to upcharge from that. We haven't discussed what that means in terms of revenue uplift. But the one thing just to recognize also is that, you know, from a gap perspective, cloud revenue is recognized radically over the life of the contract, whereas the on-prem revenue is, there's more revenue recognized up front. So this will create more stability in revenue going forward as well. Okay, no, great, thanks for all the color there.
Going to continue to invest to drive the business organically.
But after that our priority is to deleverage and to meet the deleveraging targets that we set out when we announced the <unk> acquisition and then beyond that we are our next priority will be to increase our dividend to get our payout ratio up to the 35% to 38% ratio over the next three to five years.
And then.
Beyond that whats up to over we're going to use to offset the dilution both from our employee employee share issuances and then also from the issuance related to the agenda deal and our cash flows remain very strong I mentioned, we had $1 6 billion.
Adena Friedman: If I could just switch gears a little bit for my second question, I just want to touch on on Berff and I mean it seems like revenue growth is accelerating there. I'm just just curious, you know, the types of conversations that as X happened with clients there, I mean do you get the sense that the SMB clients are tightening budgets or expanding budgets for these types of solutions in Berffin? I would say that every bank is facing more and more challenges of fraud, AML.
Free cash flow in the trailing 12 month basis. So we feel really well positioned to do all of those things in the priority order that I that I listed.
Okay understood. Thank you for that.
And Dana I mean.
You mentioned.
Some of the drivers for the strong kind of high teens growth for <unk>.
Adena Friedman: So the fraud side is just a pure, very easy return on investment calculus because they are losing money to fraud, and they have to, and when they make their clients go on something that's happened in their accounts. So it's a, you know, it's a really nice clear return on invested capital when they come in and leverage our solutions. Additionally, it is a cloud-based solution. So they're having to make less of an upfront investment from an infrastructure perspective.
Just given the nature of the dental business kind of the length of the sales cycle, there and the progress that <unk> seen since the deal announcement in June just wondering if you could provide any updates on do you feel more or less confident in kind of that medium term low to mid teens medium term revenue growth target for <unk> as we look out for.
1024, specifically.
Yes, so we don't as you know provide anything specific to a year, but our medium term outlook of.
Adena Friedman: And so it's a cleaner kind of frankly commitment to us. And then lastly is we do a really good job on boarding clients. And so particularly small to medium banks, we have an amazing machine to to onboard this clients and bring them up to up into the system very quickly for the large scale banks, we're working really well with them to integrate or implement and integrate these solutions. And as you can see, we did have that one expansion contract with a client that just signed out at that time in the beginning of the year.
Low to mid teens revenue growth across the business and that would be a plus the cost of our delivery revenue. We continue to have confidence in our ability to achieve that one sometimes it becomes part of NASDAQ I think as I mentioned there continues to be really nice strong demand generally for the solutions.
And then also I think.
We haven't been able to show the ability to upsell our clients and in fact, they're signing more new clients. This year than last year, just gives us more upsell capability over time.
And the environment is is it these are kind of need to have solutions from banks I think that particularly as we're managing through an increasingly complex regulatory environment theres more risk in our system than there has been in the past liquidity rescue and other things and also cross currents across asset classes.
Adena Friedman: So they took our solution, we've been able to implement it and immediately sort of realizing that they wanted more capabilities from us with the complex investigations. So we see really good opportunity to expand. And so in the AML side, it's a matter of just a lot of regulatory pressure. And frankly, the banks really having a true interest in just making sure they do not have that type of money laundering going through their systems.
Adena Friedman: And so again, it's an increasing threat to become more complex. Our systems are more advanced than many others. We use a lot of AI in the algorithms to read out criminals. We're able to show much, many fewer false positives and more, you know, more activity found within our competitors. And it's just driving a lot of good conversations and demands. So we're. I really do think also the last thing I would say is really interesting.
It really are driving demand for the solution. So over the medium term outlook. Our medium term outlook remains the same at that low to mid teens revenue overall revenue growth.
Thanks Dana.
Sure.
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 my question wanted to ask about verifying I was hoping you could speak to the competitive environment today for verify and how you see that evolving understand theres Big Tech companies, such as Google that have introduced some AML solution. So maybe you could speak to how your solution differs talk about some of the steps youre taking to stay ahead of the big too big.
Adena Friedman: I go to these conferences and I have gone to meetings with small banks. And I've had banks come up to me and say, Verifin is by far their favorite partner. And they just they find that we're a really good partner and they use that word as opposed to vendor. And I think that that's really a testament to the great service that the Verifin team provides the clients. Great. Thank you so much again. Thank you.
Tech competitors that have deep pockets and AI expertise.
Sure Yeah. So I think there's a difference between what Google is doing and what we're doing so Google is partnering with a specific bank and providing AI algorithms to support that internal banks essentially think of it as like an internal build but leveraging google's infrastructure. So they the bank is bringing to that relationship.
Kyle Voigt: And I show our next question comes from the line of cow's void from KVW. Please go ahead. Hi, good morning. So now that you have one of site to deal closure and you have a bit more clarity on the interest rate environment where your stock is trading. I just want to revisit the topic of capital allocation after the deal closure. How should we think about capital priorities specifically on on de leveraging versus buyback post deal closure.
We have very specific algorithms and patterns of thought what that they're looking for what we call agents and so that really is kind of a what I would say more of a facilitated on a facilitated bespoke build but with the Google underpinning the Google infrastructure, and you're right and the benefit of their AI capabilities, what we do is.
Kyle Voigt: And is there any framework you could provide for maybe level of buybacks anticipated for a specific period post deal closure that could kind of help frame the mix there. Sure, hi, Kyle. Absolutely. So as we think about post-deal closure, obviously, we will evaluate the marketing conditions from a shared purchase perspective, but in terms of our capital priorities, first and foremost, we are going to continue to invest to drive the business organically.
A purpose built complete software solution that is purpose built for the needs of fraud, and AML detection investigation and reporting and so we provide an end to end solution. The fact that we have transaction data across 2500 banks and we also we are a cloud based solution. So we're able to.
Bring all of that transaction did it together and we leverage AWS, so AWS as our cloud provider, we're leveraging their AI capabilities and their AI engines, including.
The the bedrock solution that we're using for their gen AI capabilities that routing I think that it it allows us to benefit from another great large technology company, but we have built a purpose built solution that is scaled across 2500 banks and so it makes it to the bank doesn't have to do their own bespoke build we are benefiting from.
Kyle Voigt: But after that, our priorities to de-leverage and to meet the leveraging targets that we set out when we announce the Adena acquisition, and then beyond that, our next priority will be to increase our dividends to get our parent ratio up to 35% to 38% ratio over the next three to five years. And then ask beyond that, what's up to over? We're going to use to offset the delusion, both from our employee share issuances and then also from the issuance related to the Adena deal.
The knowledge across all of these banks and the experience and what Theyre seeing to continue to tune our engines and to build out the solutions and the last thing that says we do weekly releases and so.
So we're always staying in touch with the banks as to what Theyre seeing and bringing those agents into the system that benefits all of our clients are not just one client. So we really do think it's a different it's a totally different sale than it would be to look at as compared to what Google is doing with that one bank.
Kyle Voigt: And our cash flows remain very strong. I mentioned we had 1.6 billion in free cash flow in a trailing 12-month basis. So we feel really well positioned to do all of those things in the priority order that I listed.
Last thing I would say is we are winning share and we're winning we're winning in terms now of taking out internal build.
Adena Friedman: Okay, understood. Thank you for that. And Adena, I mean, you mentioned some of the drivers for the strong high-teens growth for Adena ARR, just given the nature of the Adena business, kind of the length of the sales cycle there, and the progress that you've seen since the deal announcement in June. Just wondering if you could provide any updates on if you feel more or less confident in kind of that medium-term low-to-mid-teens medium-term revenue growth target for Adena as we look out and for 2024 specifically.
How does the benefit of the consortium data that we have and they're.
They are really nice workflow solution and we.
We're also taking out competitors. So we're really pleased with momentum.
Great and just a follow up question if I could just on paraffin fed now just launched in July our new real time payments rail, but there are some concerns around fraud that might limit the uptake by institutions. So can you just speak to verify and real time payment solution. How you see the opportunities set evolving there and any sort of lessons learned from the clearinghouses real time payment service.
Adena Friedman: Yeah, so we don't, as you know, provide anything specific to a year, but our medium-term outlook of low-to-mid-teens revenue growth across the Adena business, and that would be ARR plus the customer delivery revenue, we continue to have confidence in our ability to achieve that once Adena becomes part of NASA. I think, as I mentioned, there continues to be a really nice strong demand generally for the solutions. And then also I think that they've really been able to show the ability to upsell the clients.
That's been in place for some time and I believe you have a solution there as well.
Yeah, Yeah actually we do we connect with the fed now we connect with the clearinghouse. So we are rolling out on a real time payment solution and.
And we've been in contact with the fed and the context of their rollout we've been working with the Big Bank.
Adena Friedman: So the fact that they're signing more new clients this year than last year just gives us more upsellability over time. And the environment is, these are kind of neat to have solutions from banks. I think that if particularly as they're managing through an increasingly complex regulatory environment, there's more risk in the system than there has been in the past. They look pretty risk in other things. And also cross-currents across asset classes that really are driving demand for the solution. So over the medium-term outlook, our medium-term outlook remains the same at that low-to-mid-teens revenue overall revenue growth. Thanks, Adena.
The core banking system providers, because they also they provide core infrastructure of the banks to be able to integrate set now and other real time payment solution. So we've been working with them to make sure we're integrated into their solutions make it easy for the banks onboard us for fraud detection. So it's definitely that is actually a specific growth area that we're engaged.
Adena Friedman: Thank you.
With our SMB, our banks are small to medium banks on as we speak.
Great. Thank you.
Thank you.
And I show. Our next question comes from the line of Craig Siegenthaler from Bank of America. Please go ahead.
Thanks, Good morning, and thanks for taking my question I wanted to first touch on the pickup in IPO activity. So.
Michael Cyprys: And I share our next question comes from the line of Michael Cypress from Morgan Stanley. Please go ahead. Hey, good morning. Thanks for taking the question. What did I ask about Verifin? I was hoping you could speak to the competitive environment today for Verifin. How you see that evolving, understand there's big tech companies such as Google that have introduced some AML solutions. And maybe you could speak to how your solution differs. Talk about some of the steps you're taking to stay ahead of the big tech big tech competitors that have deep pockets in AIX, and Chris Ortiz.
Really nice to see a high win rate.
<unk> this quarter, including several big Ipos, but since then we've seen the markets pulled back rates rise.
Now I know you mentioned you have a robust pipeline, but how has the recent macro including the conflict in Israel and.
Impacted the near term pipeline.
Yeah, It's a great question Craig.
It hasn't impacted it so I think I would say.
You know what how would you characterize 'twenty two and 'twenty three it's been you know we're coming off of a very significant environment.
Adena Friedman: Yeah, so I think that there is a difference between what Google is doing and what we're doing. So Google is partnering with a specific bank and providing AI algorithms to support that internal banks essentially think of it as like an internal build that leveraging Google infrastructure. So the bank is bringing to that relationship, you know, very specific algorithms and patterns of what that they're looking for, what we call agents. And so that really is kind of a what I would say more of a facilitated on a facilitated bespoke build, but with the Google underpinning the Google infrastructure.
What I would call a free money environment.
Going into an environment that are worth rising interest rates, which creates unpredictability of the future.
An economy that seems to have had a lot of resilience, but it's it's still slowing down and and a lot of unpredictability that investors are struggling with because at the end of the day they have to underwrite the future earnings of the company and if they can't understand the overall economic environment, it's hard to underwrite that risk so I would say <unk>.
Three started with a pretty deep frost.
We started to see some light green shoots as Nelson likes to say as he went through the spring.
Adena Friedman: And you're right in the benefit of their AI capabilities. What we do is a a purpose built complete software solution that is purpose built for the needs of fraud and AML detection, investigation, and reporting. And so we provide an end to end solution. And the fact that we have transaction data across 25 hundred banks. And we also we are a cloud-based solution so we're going to bring all of that transaction data together and we leverage AWS.
The interest rate environment became a little bit more known.
But the fact is that its kind of fits and starts here. So we'll have a window open and we obviously had some some really interesting companies come out of September and then youre starting to see the macro environment change again, the geopolitical environment become much more unstable and that of course is making investors pause again on an understanding and know how to take that.
Adena Friedman: So AWS is our cloud provider. We're leveraging their their AI capabilities and their AI engines, including the bedrock solution that we're using for the gen AI capabilities that we're adding. I think that it it allows us to benefit from another great large technology company, but we have built a purpose built solution that is scaled across 25 hundred banks. And so it makes it so the bank doesn't have to do their own bespoke build.
Risks so no we do actually have a really good pipeline of companies. We're really really proud of the team I mean, our team is just awesome and and so they're really working hard to work with clients, but the majority of the conversations we're having with clients not all of them, but the majority are about the first half of next year a much more so than the second than the fourth quarter of this year.
<unk>.
Thank you Deanna and just for my follow up also on a similar topic.
Adena Friedman: We are benefiting from the knowledge across all of these banks and the experience and what they're seeing to continue to tune our engines. And to build out the solutions and the last thing that says we do weekly releases. And and so we're always being on touch with the banks as to what they're seeing and bringing those agents into the system that then benefits all of our clients and not just one client.
Can you remind us what percentage of your data and listings revenue.
<unk> from initial listings and can you quantify the headwinds from roll offs from accrued revenue from that strong 2021.
<unk> IPO period.
Yeah No I.
Again, a good question to understand kind of the dynamics in our listings business. So I don't know the exact percentage of revenue that's coming from newest things because just to remind everyone. We have our annual listing fees and then we have our initial listing fees. Our initial listing fees are amortized over a two to four year pair or two to six year period, I think depending on.
Adena Friedman: So we're really we do think it's a different it's a totally different sale than it would be to look at as compared to what Google is doing with with that one bank. The last thing that says we are winning share and we're winning we're winning in terms of taking out internal build because of the benefit of the consortium that we have and the and the really nice workflow solution. And we're also taking out competitors. So we're really pleased with momentum. Great.
What type of listing it is and how big it is so so you're right that there is some initial listing revenue that's rolling off in from the 2021 listings not all but some you know as as that.
Adena Friedman: And just a follow up question if I could just on bare and fed now just launched in July a new real time payments real, but there's some concerns around fraud that might limit the uptake by institution. So can you just speak to bare and real time payment solution. How you see the opportunity set evolving there and any sort of lessons learned from the clearing houses real time payment service. That's been in place for some time and I believe you have a solution there as well.
Amortization of our flow through and that will come off in 'twenty four.
Answer is around 10% of our overall listing revenues, so which is in the listing revenue is somewhere in the range of year to date 300, Yeah, Yeah 300, Brian .
So it's.
That revenue will have some fluctuation as you go into 2024, and so you've got to look at the combination of the newest things and as well as from an annual listing fee revenue perspective.
Adena Friedman: Yeah, yeah, actually we do we connect with said now we connect with the clearing house. So we are rolling out a real time payment solution. And we've been in contact with the Fed in the context of their rollout. We've been working with the big bank, the core banking system providers, because they also, you know, they provide core infrastructure, the banks that be able to integrate said now and other real time payment solutions.
It would be de listings that were experiencing and we do provide you that data every quarter as.
As we think about what the billing cycle is going to look like in January for.
For the annual fees.
These are big factors to consider in 'twenty four.
Great. Thanks, you Dana.
Sure.
Adena Friedman: So we've been working with them to make sure we're integrated into their solutions, make it easy for the banks on board us for fraud detection. So it's definitely that is actually a specific group area that we're engaged with our SMB of banks, our small to medium banks on as you speak.
Thank you.
And I show. Our next question comes from the line of Owen Lau from Oppenheimer. Please go ahead.
Adena Friedman: Great. Thank you.
Good morning. Thank you for taking my question. So your organic growth all the solution base et cetera, et cetera, and then come back to your medium to long term outlook you talk about the strength in backend anti freedom Quad business I'm, just wondering if the equity market.
Craig Siegenthaler: and I share our next question comes from the line of Craig Siegenthaler from Bank of America. Please go ahead. Thanks. Good morning and thanks for taking my question. I wanted to first touch on the pickup and IPO activity. So, you know, it was really nice to see a high win weight at a Nasdaq this quarter, including several big IPOs, but since then we've seen the markets pull back rates rise. Now, I know you mentioned you have a robust pipeline, but how is the recent macro, including the conference?
And auto business remains stable in the near term in the IPO market remains muted.
How should investors think about your organic growth over the next few quarters excluding events. Thank you.
Sure well I mean, I, we don't give specific guidance on our specific outlook quarter by quarter or year over year, but but I think that you're right that we're really pleased to see the solutions business is revenue growth really returning into the medium term outlook that where we have been.
Craig Siegenthaler: It's like an Israel impacted in your term pipeline? Yeah, it's a great question, Craig. It has impacted it. So I think I would say, you know, how would you characterize 22 and 23? It's been, you know, we're coming off of a very significant environment and what I would call a free money environment, coming into an environment that we're rising interest rates, which creates unpredictability of the future. An economy that seems to have, have a lot of resilience.
Communicating to you all for a while now and I think Owen if you know if we have a healthy IPO environment and that really starts to that engine starts to turn on again in 'twenty four I think you'll see the primary benefit of that will actually start to happen in 'twenty five just because it then flows into our annual listing fees.
Craig Siegenthaler: But it's still slowing down and a lot of unpredictability that investors are struggling with because at the end of the day they have to underrate the future earnings of a company and if they can't understand the overall economic environment is hard to underrate that risk. So I would say 23 started with a pretty deep frost. We started to see some light green shoots as Nelson likes to say, as we went through the spring, as the interest rate environments became a little bit more known.
But beyond that if we have a stable and healthy trading environment listing environment. That's been obviously drives really good index flows it drives data demand.
And it also probably loosens up and makes it so that that corporates and investors are more ready to invest in new solutions that help automate a lot of the manual processes. They have so.
It could that could continue to unlock more interesting and frankly easier sales decisions in that space. When it comes to market Tech and anti been crime, though those are really good solid demand.
Craig Siegenthaler: But the fact is that it kind of fits and starts. So we'll have a window open and we obviously had some really interesting companies come out of September. And then you're starting to see the macro environment change again the geopolitical environment become much more unstable. And that, of course, is making investors pause again on understanding how to take that risk. So we do actually have a really good pipeline of companies. We're really, really proud of the team.
This is where exchanges are very very focused on bringing their technology into the future and we now have.
We've done a nice job really getting to a state of maturity across our CST solution. Our next gen clearing solution or an extra trading solutions, so and our risk management solutions. There. So we feel like that demand driver is more stable generally and then amtech and crime is just as you know it's it's a need to have technology and we do think we have the best technology.
Craig Siegenthaler: I mean, our team is just awesome. And so they're really working hard to work with clients. But the majority of the conversations are having with clients, not all of them, but the majority are about the first half of next year. I'm much more sit on the second than the fourth quarter of this year. Thanks, Adina.
Available so.
That demand, we just feel like as much is very structural so I can't say exactly what that means for solutions business growth, but.
Having a healthy general healthy market environment, certainly helps create even more opportunity for us.
Adena Friedman: And just for my follow up also on a similar topic, to your minus what percentage of your data and listings revenue is coming from initial listings and key quantify the headwinds from rolloffs from a crude revenue from that strong 2021 and 20 IPO period. Yeah, I know again, a good question to understand kind of the dynamics and the listings business. So I don't know the exact percentage of revenue that's coming from new listings.
Got it that's helpful and a quick one on the sales cycle on that answer I mean, we've been talking about you don't get a sales cycle I'm just wondering.
Is there any like show cycle impact when a timeshare I mean, you talk about high teens growth I think with entering the third quarter I'm. Just wondering you know like all get ourselves cycled a bunch of choice with these or things like that how hard you could have gone right.
Adena Friedman: Because just to remind everyone, we have our annual listing fees and then we have our initial listing fees are initial listing fees are amortized over a two to four year period or two to six year period, I think. Depending on the type of listing it is and how big it is. So so you're right that there is some initial listing revenue that's rolling off in from the 2021 listings, not all, but some, you know, as that implementation flows through and that'll come off in 24.
Yeah, I actually do think that there are more gates that are you know.
All of the larger institutions have a lot of gates to talk through and I think that are impacting run business.
We're marching through escapes, but the gates you know there are many games and.
And we have great experience with pets, especially with our surveillance business, because I understand that but with the Denver out. There are there are more gates that theyre walking through to get to a sale, particularly with the larger institutions, except when theres, a regulatory demand and that that's what we're really interesting I mean, we've had some really interesting and super regionals.
Adena Friedman: The answer is around 10% of our overall listing revenues. So which is in the listing revenue is somewhere in the range of year to date 300. Yeah, yeah, 300 billion. So it's that revenue will have some fluctuation as you go into 2024. And so you've got to look at the combination of the new listings and as well as from an annual listing fee revenue perspective, the the deal listings that we're experiencing, we do provide you that data recorder. As we think about what the billing cycle is going to look like in January for the annual fees. So those are the big factors to consider in 24.
Adena Friedman: Great. Thanks, Adina. Sure. Thank you.
Sign up for axiom like within three months or four months. It's been some really sure you know some really short sales cycles. When there is a regulatory demands, but if there isn't any.
I really a near term or immediate regulatory demand it sounds like there's a little longer I think they actually experience longer sales cycles in 'twenty, two and they're experiencing 23, but generally speaking I think.
That if we had a.
A really healthy macro environment around us and more predictability of the macro environment. It would certainly be advantageous to have gone to over over time.
Owen Lau: And I share our next question, comes from the line of Owen Lau from Oppenheimer. Please go ahead. Good morning. Thank you for taking my question. So your organic growth of the solution business has accelerated and come back to your medium to long term outlook. You talk about the strength in index and anti-fim crying business. I'm just wondering if, you know, the equity market, their own and other business winning stable in the near-term and IPO. So market, we need like to how should investors think about organic growth over the next few quarters, excluding a dancer. Thank you.
Got it thank you very much.
Sure.
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 folks. Thanks for taking my question, maybe just back on <unk>.
In terms of the normal seasonality, we have seen in the last couple of years in that business or I should say anti financial crime broadly.
Do you expect that also to represent.
Past pattern over the last two years in the fourth quarter, and then just sort of confidence around that.
20% plus type of growth rate that you've been able to.
Adena Friedman: Sure. Hey, well, I mean, I, we don't give specific guidance or specific outlook quarter by quarter or year by year, but, but I think that you're right that we're really pleased to see these solutions businesses revenue growth really returning into the medium term outlook that where we have been. It's communicating to you all for a while now. And I think, Owen, if, you know, if we have a healthy IPO environment and that really starts to that engine starts to turn on again in 24, I think that you'll see the primary benefit of that will actually start to happen in 25 just because it then flows into our annual listing fees.
Achieving that.
Going into 'twenty 'twenty four.
Great well generally we do see the I think it's somewhere in the range of 40% of bookings occurs in the fourth quarter for our anti financial crime business and we would say that that's generally.
What we're seeing so we know the difference though is that if we you know when we do an upsell to the to the largest banks there is a little bit of that sounds not necessarily seasonal and we don't have as much experience. There. So we're not seeing you know that's not something that every single fourth quarter, we're going to see something different but certainly with the <unk>.
Adena Friedman: But beyond that, you know, if we have a stable and healthy trading environment listing environment, that then obviously drives really good index flows, it drives data demand. And it also probably loosens up and makes it so that that corporates and investors are more ready to invest in, but you know, their new solutions that help automate a lot of the manual processes they have. So it could, you know, that could continue to unlock more interest and frankly easier sales.
Dominion banks, which is the key.
Core business of ours.
And so I've been crime business so far.
Hum.
Fourth quarter is a big sales quarter, and that's actually the case for agenda as well kind of 40% to 45% of our bookings tend to come in the fourth quarter.
In terms of just the general growth characteristics someday and Taxane crime business. We're very pleased with the progress we continue to see good good opportunity to continue to grow at an 18% to 23% growth rate that we've been experiencing.
Adena Friedman: There's a lot of those decisions in that space when it comes to market tech and and anti-fin crime though those are really good solid demand businesses where exchanges are very, very focused on bringing their technology into the future. And we now have, I think we've done a nice job of really getting to say the maturity across our CSD solution, our next and clearing solution, our next and trading solution. And our response solutions there.
No. That's good good to see the progress there and then maybe if you could just update us on the status of the.
After sea market structure proposals.
It's a big debate in the industry and Theres a lot of.
Back and forth on that but do you see anything being potentially implemented in 2024 or do you think it's.
Adena Friedman: So we feel like that demand driver is more stable generally and then anti-fin crime is just as you know, it's a need to have technology and we do think we have the best technology available. So that demand we just feel like is much is very structural. So you know, I can't say exactly what that means for solutions business growth, but having a healthy general healthy market environment certainly helps create even more opportunity for us. God, that's helpful.
Debate will sort of linger on at least into 'twenty five.
I think that on the four proposals that the SEC has proposed I would expect that we'll see something come out to be to start to get implemented as we go through 2024.
Don't know what that's gonna look like that I think they've had a lot of comments on the proposals.
And I think that in general.
The two that seem very that feel a little bit more certain of our the ticket sizes and a 605, there's two proposals feel quite certain I think that on the best stacks and the order competition rule. If those are the ones have engendered a lot more debate within the industry. So we.
Adena Friedman: And a quick one on the sell cycle on adventure. I mean, we have been talking about, you don't get a sell cycle. I'm just wondering, you know, is there any like sell cycle impact on adventure. I mean, you talk about high teen growth. I think we're dancing in the third quarter. I'm just wondering if there's no like you don't get a sell cycle, the budget gets like in release or things like that.
We don't know exactly how that is going to turn out.
That's great color. Thank you.
Sure.
Yeah.
Thank you.
Adena Friedman: How high it could have gone. Thanks. Yeah, I actually do think that there are more gates that are, you know, all of the larger institutions have a lot of gates to walk through. And I think that our anti-fin crime business, you know, we're more reaching through those gates, but the gates, you know, there are many gates. And we have good experience with that, especially with our families, this is to come understand that, but with the denser there are, there are more gates that they're walking through to get to a sale, particularly with the larger institutions, except when there's a regulatory demand.
And I show. Our next question comes from the line of Simon Clench from Redburn Atlantic. Please go ahead.
Hi, Dan Hi, Thanks for taking my call.
Wonder if we jump back to Denver.
Denver again.
Just your comments about your preparations for integration. Obviously this is a large transaction and it's one that you're actually going to be fully integrating into the business. I was wondering if you could give us an update on I guess what.
What the puts and takes all to this plan.
Adena Friedman: And that's what we're really interesting. I mean, we've had some really interesting super regional sign up for an axiom, like within three months or four months, it's been some really shorter, you know, some really short sales cycles when there's a regulatory demand. But if there isn't a really a near term or immediate regulatory demand, the sales cycles are a little longer. I think they actually experienced longer sales cycles in 22. And they're experiencing 23, but generally speaking, you know, they I think that if we had a really healthy macro environment around us and more predictability of the macro environment, it would certainly be advantageous to them over over time.
And ultimately how to think about the technology stack and what that.
The integration of that into your existing cloud infrastructure really remains full.
Will the expense base and margins for that business going forward.
Great. Thanks.
I can I can say that Tal and our entire team has been extremely focused on building out a very robust integration plan and we've been engaged with the attentive team now for several months and we're having regular engagement with them to develop those plans and make sure that we feel really good about how we're going to kick off the integration on <unk>.
One.
And we felt a lot more granularity to the plan, we still obviously don't own them. So once we own them and we're able to meet more people I'm really understand the operations will be able to flesh that out into a great amount of detail, but we're extremely committed to achieving the integration expectations that we deliver to you all at the announcement.
Adena Friedman: Connie, thank you very much. Sure. Thank you.
Brian Bedell: And I show our next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead. Great. Thanks. Good morning, folks. Thanks for taking my question. Maybe just back on Verfen, just in terms of the normal seasonality. We have seen in the last couple of years in that business where I should say anti-financial crime broadly.
Also definitely see benefit and in the cloud infrastructure that we have that's actually part of our integration we have not done a lot of detailed work yet on that because we don't own them.
Adena Friedman: Do you expect that also to represent the past pattern of the last two years in the fourth quarter and then just sort of confidence around that, you know, 20% plus type of growth rate that you've been able to achieve in that on a more, you know, going to 2024. Great. Well, generally we do see the, I think it's somewhere in the range, like 20% of bookings occurs in the fourth quarter for our anti-financial crime business.
We have a lot in my opinion proprietary IP when it comes to our cloud capabilities and our cloud team. So we want to make sure that we we own them.
Before we go into a really really deep dives on a technical infrastructure, but our relationship with AWS, we think will be a benefit I think the expertise that we have in creating very efficient cloud infrastructure protecting typically from a data ingress egress perspective, I think it's going to be very helpful.
And so we look forward to really working with them to continue to develop as cloud capabilities.
Adena Friedman: And we would say that that's true. Generally, the, what we're seeing. So we know the difference, though, is that if we, you know, when we do upsell to the, to the largest banks, there's a little bit of, that doesn't necessarily seasonal, and we don't have as much experience there. So we're, we're not seeing, you know, that's not something that every single fourth quarter we're going to see something different. But certainly with the small and medium banks, which is the core business of the anti-financial crime business so far.
Have a great team is to in five years like how do we want these services to be delivered how much do we want to have a single tenant and multi tenant capabilities.
What kind of what kind of overall overarching environment do we want to create for our clients. So they see us as a strategic partner across risk management right tack anti fin crime capital markets. There's a lot that we can do there, but we have to have to get in there we have to own them. We have to kind of get really engaged with them. So that we can give you a better answer to that.
Adena Friedman: The fourth quarter is a big sales quarter, and that's actually the case for a dense as well, you know, kind of 40 to 45% of bookings tend to come in the fourth quarter. In terms of just the general growth characteristics of the anti-financial crime business, we're very pleased with the progress. We continue to see good, good opportunity to continue to grow and not 18 to 23% growth rate that we've been experiencing. Good to see the progress there.
In the coming months and quarters.
Yeah.
That's great. Thanks, I guess, just a second question here and just changing tack a little bit.
On the cash equities business.
I've noticed that the.
Revenue capture has been rising quite substantially.
The sort of market volumes have stagnated a fallen.
Adena Friedman: And then Adina, maybe if you could just update us on the status of the FEC market structure proposals. I know it's a big debate in the industry, and there's a lot of, you know, back and forth on that. But do you see anything being potentially implemented in 2024? Or do you think it's, you know, the debate will sort of linger on at least into 25? I think that on the four proposals that the FEC has proposed, I would expect that we'll see something come out to be, you know, to start to get implemented as we go through 2024.
So some of this has to do with mix, but I was wondering if you could expand a little bit on on sort of what the dynamics are there and it's just a deliberate sort.
Management on your part to I.
I guess smooth out revenue by taking their pricing when times slow down or how should we think about that strategy going forward.
Well I think one of the things. We've always said is that we like to make sure that we have a good balance between share and capture and one of the things. We've been focused on is what is our share of available liquidity and Anne mentioned before and we've been able to manage a managed to a pretty stable share of available liquidity and what do we mean by that.
Adena Friedman: We don't know what that's going to look like yet. I think they've had a lot of comments on the proposals. And I think that in general, you know, the two that seem very, that feel a little bit more certain are the tick sizes and the 605. Those two proposals feel quite certain. I think that on the best decks and the order competition rule is those are ones that have engendered a lot more debate within the industry. So we don't know exactly how that's going to turn out.
In times when volatility goes down there tends to be more trading that occurs off exchange. So the off exchange trading percentage tends to go up then.
And then we look at it and say well what can we actually achieve and bring them into the exchange and how are we competing with other exchanges and there we look at our what we call available liquidity and and I think we've maintained a pretty stable share about 30% and then within that we then say what kind of volumes are we trying to attract into our solution. We want to attract volumes that are added.
Simon Clinch: Great colors. Thank you.
<unk> two overall lives on the platform. So one one certain orders that come into the market feed other orders and we're going to work hard to get those orders and.
Adena Friedman: And I show our next question comes from the line of Simon coins from Redburn Atlantic. Please go ahead. Hi, Deena. Hi. Thanks for taking my call. So I wonder if we jump back to to a dancer again and just your comments about your preparations for integration. Obviously, this is a large transaction and it's one that you're actually going to be fully integrating into the business. So I was wondering if you could give us an update on I guess what what the puts on takes are to to this plan and ultimately how to think about the technology stack and what that, you know, what the integration of that of a dancer into your existing cloud infrastructure really really means for. For the expense base and margins of that business going forward. Great, thanks.
The other thing is we provide a lot of really interesting as you mentioned specialized order types that also allow us to charge different different rates for those services, because theyre specialized execution capabilities and that allows us to have a higher capture but the one thing. We don't do is chase share that just is fleeting.
That if you chase that share you can really have a significant negative impact on capture and frankly, not get share and that's additive to the M. D. B O knock it sure that brings other other volume and so we're very very intentional about that and that's why you're seeing some capture go up because more of the volumes moving towards our specialized capabilities.
Adena Friedman: Well, I can say that Tal and the entire team has been extremely focused on building on a very robust integration plan. We've been engaged with the Adena team now for several months and we're having regular engagement with them to develop this plan and make sure that we feel really good about how we're going to kick off the integration on day one. And we felt a lot more granularity to the plan. We still obviously don't own them.
And we're not we're not doing what are others of our you know our competitors are doing in terms of chasing fleeting sure.
Adena Friedman: So once we own them and we're able to meet more people and really understand the operations, it will be able to flesh that out into a great amount of detail, but we're extremely committed to achieving the integration expectations that we deliver to all of the announcement. We also definitely see benefit in the cloud infrastructure that we have. That's actually part of our integration. We have not done a lot of detailed work yet on that because we don't own them.
That's great. Thank you. Thanks, so much.
Sure.
Thank you.
Yeah.
As a reminder.
To ask a question at this time, please press star one on your telephone.
Okay.
I'm showing no further questions in the queue at this time I'd like to turn the call back to Athena Friedman chair and CEO for closing remarks.
Great. Thank you well we are excited to continue to update all of you in the coming quarters as we approach the closing the agenda that transaction and we continued to advance along our journey to become the trusted fabric of the world's financial system and so thank you very much and have a great day. Thank you.
Adena Friedman: We have a lot of, in my opinion, proprietary IP when it comes to our cloud capabilities and our cloud team. So we want to make sure that we own them before we go into a really, really deep dive on the technical infrastructure. But our relationship with AWS, we think will be a benefit. I think the expertise that we have in creating very efficient cloud infrastructure, particularly from a data ingress, egress perspective, I think it's going to be very helpful.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Goodbye.
That was.
Okay.
Okay.
[music].
Hum.
Yeah.
Adena Friedman: And so we look forward to really working with them to continue to develop this cloud capabilities. I have a great view of it in five years, like how do we want these services to be delivered? How much do we want to have a single tenant and multi tenant capabilities? What kind of, what kind of overall overarching environment do we want to create for our clients? So they see us as a strategic partner across your risk management, rig tech, anti-fin crime, capital markets.
[music].
Hum.
Okay.
Okay.
[music].
Adena Friedman: There's a lot that we can do there, but we have to get in there. We have to own them. We have to kind of get really engaged with them so that we can give you a better answer to that in the coming months and quarters.
Yeah.
Hmm.
Adena Friedman: That's great. Thanks.
Yes.
[music].
Yeah.
[music].
Adena Friedman: I guess just a second question here and just change and tackle a little bit. Just on the cash equity business, I've noticed that the revenue capture has been rising quite substantially, while the market volumes have stagnated or fallen. I know some of this is to do it mixed, but I was wondering if you could expand a little bit on what the dynamics are there, and is this a deliberate management on your part to smooth out revenue by taking people pricing, when time slow down, or how should we think about that strategy going forward?
Okay.
Yes.
Okay.
Yes.
Okay.
Adena Friedman: I think one of the things we've always said is that we like to make sure that we have a good balance between share and capture, and one of the things we've been focused on is what is our share of available liquidity and amention before? We've been able to manage to a pre-stable share of available liquidity, and what do we mean by that? In times when volatility goes down, there tends to be more trading that occurs off exchange, so the off exchange trading percentage tends to go up.
Adena Friedman: Then we look at and say, well, what can we actually achieve and bring into the exchange and how are we competing with other exchanges? In there, we look at what we call available liquidity and I think we've maintained a pretty stable share about 3%. Then within that, we then say, what kind of volumes are we trying to attract into our solution? We want to attract volumes that are additive to overall volumes in the platform.
Adena Friedman: One certain order that come into the market, feed other orders, and we're going to work hard to get those orders in. The other thing is we provide a lot of really interesting, as we mentioned, specialized order types that also allow us to charge different rates for the services because they're specialized execution capabilities, and that allows us to have a higher capture. But the one thing we don't do is just chase share that is fleeting.
Adena Friedman: If you chase that share, you can really have a significant negative impact on capture, and frankly, not get share that's additive to the NBBO, not get share that brings other volume in. So we're very, very intentional about that, and that's why you're seeing some capture go up, because more of the volumes moving towards our specialized capabilities, and we're not doing what other competitors are doing in terms of chasing fleeting share.
Adena Friedman: That's great.
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Unknown Executive: Thank you.
Unknown Executive: Thank you so much.
Unknown Executive: Sure.
Unknown Executive: Thank you.
Unknown Executive: As a reminder, to ask a question at this time, please for a star 1-1 on your telephone.
Unknown Executive: I'm sure no further questions indicate at this time.
Adena Friedman: I'd like to turn the call back to Adena Friedman, Chair, and CEO for closing remarks. Great. Thank you. Well, we are excited to continue to update all of you in the coming quarters as we have pushed, including the advance of transaction, and we continue to advance along our journey to become the entrusted fabric of the world's financial system. And so thank you very much and have a great day. Thank you.
Yes.
Okay.
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Unknown Executive: This concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye. .
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Unknown Executive: Andrew Bannert, Sarah Youngwood, Andrew Bond, Andrew Bond, Sarah Youngwood, Andrew Bond[inaudible] . .