Nasdaq, Inc.

Good day, ladies and gentlemen, and welcome to the NASDAQ first quarter 2019 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Ed Dittmeier, Vice President of Investor Relations. Sir, you may begin.

Good morning, everyone, and thank you for joining us today to discuss NASDAQ's first quarter 2019 financial results. On the line are Adina Friedman, our CEO, Michael Potasnik, our CFO, Ed Knight, our general counsel, and other members of the management team. After prepared remarks, we'll open up to Q&A. The press release and presentation are on our website. We intend to use the website as a means of disclosing material, nonpublic information, and complying with disclosure obligations under SEC regulation updates. I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 Adina.

Thank you, Ed. Good morning, everyone, and thank you for joining us. My remarks today will focus on NASDAQ's first quarter 2019 financial results and business performance. I will also reiterate our 2019 execution priorities that we laid out earlier in the year, discuss the progress points we've achieved in advancing the company's strategic positioning, and lastly, discuss NASDAQ's proposed changes to advance the U.S. equity market structure to create a more effective and more inclusive capital market. Turning to our results, I'm pleased to report NASDAQ's solid performance for the first quarter of 2019. Our business achievements, organic revenue growth, and strong profitability came amidst a challenging first quarter capital markets backdrop, which saw significantly reduced trading activity during the quarter, as well as a late start for new listings driven by the effect of the U.S. government shutdown related to the SEC's registration processes at the beginning of the year. During the last quarterly update in January, we presented the specific areas we would be focusing our efforts on this year as we continue to advance our vision and strategy. First is to enhance our technology presence across the capital markets and beyond through a diverse client adoption of the NASDAQ financial framework. Second is to drive better client interactions with the capital markets through continued growth and expansion of our trade surveillance, data analytics, and integrity solutions across our sell-side, buy-side, and corporate client groups. Third is to enhance our leadership position in the core marketplaces in which we operate as we continue to innovate with new functionality. And lastly, to build meaningfully on our mission-driven culture to multiply our opportunities to innovate and grow. Despite certain volume and listings headwinds, the solid results we delivered in the quarter confirm our renewed strategic focus for the long term as we strengthen the company through investments in technology and analytics and deliver continued growth in our non-treating segments. Turning to specific highlights from the first quarter, our market technology segment delivered exceptional organic growth in the first quarter at 17%, following an increase in the size and number of software delivery projects and continued expansion of our SaaS surveillance franchise. More importantly, as we look forward, the business demonstrated especially strong momentum in terms of new customers including agreements with the Options Clearing Corporation to replace its legacy clearing system, as well as a new deal with Deutsche Bank to operate a U.S. single-dealer platform using NASDAQ's market technology infrastructure. Total new order intake during the quarter was 54% of 20% year-over-year. Our information services segment saw strong growth across the index and investment analytics data products, where we see a large secular opportunity while market data, which is in a more mature state, delivered steady results. Growth in index was spurred by a strong bounce back in AUM levels for licensed exchange-traded products after the fourth quarter's market declines, finishing the period up 13% compared to the prior year, while our investment data and analytics business saw continued double-digit organic revenue growth contribution by investment. Moving to our foundational businesses, let me review corporate services first. Despite the slower start for new listing activity, we continued to lead the U.S. market for IPOs with an 88% win rate in the first quarter. We welcomed 59 new listings to NASDAQ during the period, including 37 IPOs, led by Lyft, Futu Holdings, and New Fortress Energy. We also welcomed Sanofi, a $107 billion market capitalization pharmaceutical company, to our market when it switched its exchange listing from the New York Stock Exchange to NASDAQ during the quarter. Meanwhile, our Nordic markets continue to attract new companies, welcoming nine new listings up from the first quarter, and our European listed issuer count at the period end was up 3% compared to the prior year period. Additionally, the NASDAQ private market formalized a partnership with iCapital Network during the quarter to create a secondary marketplace for private funds facilitated through the NASDAQ private markets technology platform. This will offer liquidity solutions to advisors and their high-net-worth clients utilizing private equity investments. And lastly, in terms of corporate services, we completed the sale of the BeWise Enterprise Governance Risk and Compliance Software Platform to SAI Global, a decision in line with our renewed strategic focus on products and services most critical to the C-suite and board of public companies in their interactions with the capital markets. The collective organic revenue growth across our non-trading segments was 9% during the first quarter, which serves as a positive data point that when we create sustainable value for our clients, we can continue to drive accelerated growth for the company and its shareholders. Finally, our market services business delivered $233 million in the quarter, and that's in revenue, a contraction from the prior year period of 7%, driven by an unfavorable FX impact and from the difficult year-over-year industry volume comparisons relative to a particularly active first quarter of 2018 market environment. Looking past the impact of the volume environment, however, I'm pleased that we have maintained continued strong competitive positioning in our market share and capture statistics within the NASDAQ's U.S. and Nordic equity and equity options markets. Additionally, we made steady progress in implementing the significant product and service enhancements we've previously outlined for our smaller fixed income and commodities franchise. Next, I'd like to update you on our progress in our strategic repositioning to maximize our potential as a technology and analytics provider, investing to sustain and strengthen our core marketplace foundation, and freeing up capital from areas that have not proven to be strategic to our client relationships. Along these three key pillars of our strategic direction, we achieved several milestones during the first quarter. First, in terms of investing to expand the capabilities of our technology and analytics growth platform, we began the Sonoba and Quandl acquisition integrations in the first quarter. Each acquisition is off to a strong start in terms of contributing new strengths and talent to the organization, as well as an enhanced pipeline of client opportunities. On the organic side, I'm pleased by the significant and diverse partnerships we've initiated in market technology, including wins with traditional market infrastructure operators within our banks and brokers strategy, as well as non-traditional markets. Meanwhile, in information services, organically, we continue to enjoy the strength of our diverse index franchise, as well as our partnership approach with over 1,000 buy-side clients in our investment business. Next, in terms of investing to sustain and enhance our marketplace in corporate issuer core, we continue to pursue the acquisition of Oslo Bors in Norway. As a step in the regulatory approval process, we are pleased to be assessed as fit and proper by the Norwegian FSA as part of the ongoing regulatory review of the competing proposals. We continue working with key regulators and other stakeholders to advance our proposal and expect more clarity on this process in the months to come. Lastly, we have continued releasing capital from less core areas of our business through the sale of BYs to FAA capital, and on a smaller scale, the announcement of the sale of our Nordic fund market to all funds. The BYs divestiture was announced and completed during the first quarter and allows us to focus on providing corporate clients with the strategic C-suite and board solutions they need for investor relations intelligence and governance insights and collaboration. The Nordic fund market business was a small part of our broker services business, and we found a terrific strategic buyer that will be better positioned to grow and expand the business. Turning now to the current regulatory environment, I want to spend a few minutes to review our recently launched Total Markets Blueprint. In the last two years since our revitalized initiative was published, with a focus on improving the attractiveness of the U.S. equity markets as a home for innovative growth companies, We have worked with a broad and diverse coalition in Washington, D.C. to turn our proposals into reality. To date, seven bills have passed with bipartisan support in Congress, and securities regulators have issued 13 rules and announcements to help address the specific proposals that our revitalized blueprint highlighted. Despite these initial achievements, challenges remain for our markets, with significant imbalances going unaddressed between larger and smaller participants. which threaten investor choice. As stewards of the markets, we need to ensure regulations match investors' and issuers' needs, as well as advancements in technology. Our Total Markets Campaign expands on Revitalize to address the need to encourage investors of all sizes to have a positive experience in the U.S. equities markets. By having a robust and enthusiastic investor base, our listed companies will enjoy tighter spreads deeper liquidity, and a lower cost of equity capital. While the regulators have been focused on misguided proposals to address specific symptoms of the inefficiencies of the markets, we are focused on addressing the core structural issues that impede market choice and efficiency. Specifically, our recommendations focus on creating more market choice and opportunity across three key areas. The first is to bolster liquidity for small publicly traded companies. Our proposals address shortcomings in the current market structure to ensure that small issuers can continue to rely on the public markets to provide the best possible trading and investing experience for their investors. One part of this proposal is to allow small issuers to choose to concentrate on exchange liquidity at one venue. Second is to modernize data regulations to better serve long-term retail investors by unlocking even greater wave of choice and opportunity. Examples of change in this area include modernizing the vendor display rule to allow for more choice of data products by brokers and addressing arbitrary professional and nonprofessional data user classifications that create administrative burdens on the retail brokers who largely serve the retail client base. Third is to enhance effectiveness for institutional investors that manage assets for retail investors. Today, their investing and trading activity is hindered by one-size-fits-all regulation that inhibits innovation and increases costs. Our key proposals in this area are an intelligent tick and rebate regime that aligns much better to the investor's economic cost of trading rather than the arbitrary pricing caps that the SEC has proposed in its pilot. Also, We'd like to limit the order protection rule to exchange venues that have gathered a minimum level of market share, but also to allow smaller exchanges that are not subject to the order protection rule to be able to innovate and offer different market models. And lastly, to offer significant changes to the SIPP monopoly, including improving governance, creating a distributed SIPP model, and consolidating the SIPP plans and operators. all with the goal to create more of an industry voice in the SIP monopoly while also giving clients of the SIP feeds more choice and a more efficient experience. In summary, we're making deliberate, proactive proposals that will increase the benefits of competition and innovation in our markets while retaining the critical protections that instill the highest level of integrity to the U.S. capital markets. We recognize that we're in a period of intense debate over how best to advance our capital markets, and we feel incredibly strongly that maximizing the benefits of competition and innovation, the very qualities that helped establish the U.S. economy's leadership, is a superior approach to calls for increased regulation, government-mandated product design, and arbitrary price controls that pick winners and losers amongst market intermediaries, without addressing how the industry serves key issuer and investor end users. We look forward to continuing our collaboration with regulators and stakeholders. With Main Street investors and healthy markets as our focus, significant progress can be made. I encourage you to review our proposals in greater detail by visiting business.nasdaq.com slash total markets. As I wrap up, I will summarize by saying, The first quarter of 2019 produced strong results and margin expansion for NASDAQ, despite some significant declines in industry volume and new listing headwinds in the period. We continue to be guided by our renewed strategic direction and remain encouraged by early results that enhance our diversified technology presence and increase client adoption for our trade surveillance, data analytics, and corporate client solutions. Simultaneously, we're leveraging our leadership position in the U.S. equities market to offer structural improvements we believe will modernize markets to benefit issuers and investors, and we look forward to updating on our progress. With that, I'll turn it over to Michael to review the financial details.