Nasdaq, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the NASDAQ fourth quarter 2019 results conference call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Ed Dittmeier, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Good morning, everyone. Thank you for joining us today to discuss NASDAQ's fourth quarter and full year 2019 financial results. On the line are Adina Friedman, our CEO, Michael Potasnik, our CFO, John Zecca, our chief legal and regulatory officer, and other members of the management team. After prepared remarks, we'll open up to Q&A. The press release and presentation are on our website. We intend to use the website as a means of disclosing material, nonpublic information, and complying with disclosure obligations under Regulation FD. 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, and good morning, everyone. Thank you for joining us. My remarks today will focus on the following areas, NASDAQ's 2019 financial and business performance, the progress we have made to drive NASDAQ forward along our strategic direction, and our ambitions for 2020 and beyond. Turning to our results, I'm very pleased to report NASDAQ's strong financial performance for the fourth quarter and full year 2019. We achieved $646 million in net revenues in the fourth quarter of 2019, while non-GAAP earnings per share of $1.29 rose 4% compared to the fourth quarter of 2018, despite a significantly lower volume and lower volatility market environment in the U.S. as compared to the same period in 2018. Turning to full year 2019, we generated total net revenue of $2.54 billion, including 8% organic revenue growth across our non-trading businesses, tempered by a 3% decline in our trading businesses, with total organic revenue growth of 3% for the year. 2019 was another year of strong execution for NASDAQ, exceeding our longer-term revenue growth objectives in our non-trading businesses, while also exhibiting increases in efficiency, hitting a multi-year high of 49% for our non-GAAP operating margin, despite an operating leverage headwind presented by moderated trading revenues. Throughout 2019, we also continued to invest organically and inorganically to advance our offerings, guided by our strategic pivot to maximize opportunities as a technology and analytics provider, while also investing to sustain the strong competitive position of our core marketplace franchise. We are now in our third year since the announcement of our new vision for NASDAQ. Our 2019 results illustrate how NASA can deliver on our technology-led strategy and, more importantly, how our disciplined, client-centric focus is creating value not just for our clients but for all of our shareholders. We enter 2020 with strong momentum following a great finish in 2019. We experienced an acceleration in market technology and new order intake as the year progressed. With the investment, almost 40% of our new sales were to new clients, and existing clients exhibited higher average spend as product usage broadened. Our ETP assets under management are at record levels, and we have a very healthy new listings pipeline. Turning to specific highlights from our businesses in the fourth quarter and throughout the year, our market technology segment delivered 12% organic growth in the fourth quarter and 11% organic growth in 2019, as it progressed with the development and implementation of our next-gen technology platform. Our total revenue growth in 2019 was 25%, including the positive impact of the Sonoba acquisition. New order intake totaled $204 million for the fourth quarter, while our annualized recurring revenue, or ARR, totaled $260 million, an increase of 17% year-over-year. The fourth quarter featured some particularly encouraging wins. As part of our new market strategy, we recently announced that we have signed a new partnership with an Airbus subsidiary called Skytra, in which we agreed to provide the full suite of marketplace solutions to enable the air travel industry to price and manage the revenue risks associated with fluctuating ticket prices. In our sell-side business, we signed two new Tier 1 global banks to our execution platform in the fourth quarter, bringing our total to six banks and brokers as we enter 2020. We also signed extension and expansion agreements with five existing marketplace clients in the fourth quarter, including Japan Exchange Group for derivatives trading and surveillance, and FINRA for its multi-product trading and data platform services. Next, I'd like to update you on the development and deployment of our next-generation market technology product offering, the NASDAQ Financial Framework. Work on the core platform of NFF has reached advanced stages, and while our efforts to On application solutions on top of the core platform continue, we believe that both are on target in terms of our product planning schedule. As we begin 2020, other phases of this long journey become increasingly important. For example, we will focus significantly on our go-to-market approach with both our managed services and SaaS-based solutions, and we have made recent organizational changes to optimize efficient client delivery and support. We are encouraged by the growth and momentum in this segment of our business, with our sights now set on continuing to scale the business and delivering improved profitability in 2020 and 2021. Turning to our information services segment, we delivered $194 million in net revenue during the fourth quarter, a 4% increase from the prior year period, bolstered by index licensing and investment data and analytics revenues. Over the course of the full year in 2019, information services rose 9%, driven overwhelmingly by organic growth, with both the higher growth index and investment data and analytics businesses, as well as the more mature market data businesses performing in line with their respective long-term organic growth objectives. The fourth quarter marked an interesting milestone for information services. For the first time, over 50% of revenue was generated by our higher growth index and investment analytics businesses. It's exciting to see this progress in the areas with clear secular growth opportunities, born out of our strategic pivot in action. And while quarterly figures can fluctuate, I expect this trend to continue over time. As we move into 2020, we're making investments to ensure these growth engines have the fuel to continue performing in the long term. For instance, we're working to bring investments capabilities and insights to the fast-expanding private market space. Additionally, our new investment products, research management and market lens, given us new capabilities for our existing clientele, and can provide new growth engines in 2020. Moving to our foundational marketplace businesses, our corporate services segment delivered revenue of $129 million in the fourth quarter, a 5% increase, boosted by particularly strong performance in our listing business and increased demand for our investor relations intelligence offerings. Full-year organic revenue growth in corporate services was 3%. For the seventh consecutive year, NASDAQ led U.S. exchanges for IPOs in 2019 with a 78% U.S. win rate, welcoming 188 IPOs. We welcomed 50 IPOs in the fourth quarter alone, achieving an 82% U.S. win rate during the period. In 2019, we listed 10 of the top 15 IPOs by dollars raised. In total, the U.S. NASDAQ IPOs raised $34.5 billion in 2019, well in excess of the dollars raised by our competitor exchange. We are extremely pleased that our listing clients are demonstrating their trust in us as a true partner to them as they enter and navigate the public markets. Meanwhile, our Nordic, Baltic, and First North exchanges continue to attract new companies from across Europe, adding 53 new listings, including 34 IPOs in 2019. I'm also very pleased to report that we had 16 new companies switch their corporate listings from either the New York Stock Exchange or IEX to NASDAQ in 2019, including Exelon and the newly created ViacomCBS. Sanofi and TCF Financial also transferred U.S. components of their listings to NASDAQ, which combined with the 16 new switches resulted in an aggregate of $230 billion in global equity market capitalization coming to NASDAQ last year. On the private capital side, our NASIC private market business set a new record for annual volume in 2019, facilitating $4.8 billion in transaction value for private company liquidity programs. Demand for our IR intelligence offering drove growth in the corporate solutions subsegment, which saw a 6% increase in the fourth quarter. I'm proud of the growing momentum in that business. It underscores the years of under-the-hood work by our team to focus and build solutions that best suit our clients' needs. our corporate clients' needs, like our new ESG offerings, expanding the ways we help them address the most acute challenges of public issuers. Finally, our market services business delivered net revenue of $225 million in the fourth quarter, an 8% organic decline compared to the prior year period, reflecting in large part the lower volume and volatility comparison against a very active prior year period. For the full year, the organic decline was 3%, Again, due principally to moderation in industry volumes in our largest equity derivatives and cash equities products. When I look at the factors that we have the most influence on, our competitive standing as represented by our market share and capture trends, we deliver consistently in our larger revenue categories, U.S. and European cash equities and equity derivatives. Our smaller FIC area continues to be a work in progress, where we're working to enhance our offerings to deliver the kind of performance we're looking for going forward. In the U.S., the NASDAQ stock market remains the largest single venue of liquidity for traded listed cash equities, while in options, we retained the largest combined market share from multiply listed options with fairly steady capture in share developments. In Europe, NASDAQ's Nordic lit equity market share increased to 71% in 2019 versus 67% in 2018. As part of our broader commitment to engaging with our clients, I would like to highlight one regulatory development. NASDAQ introduced our total markets reform agenda last April, which outlines our ideas and proposals aimed to make the capital markets more efficient for investors, and combined with our revitalized efforts, also attractive to small and medium growth companies. The blueprint also highlighted our thinking around areas where we could help our clients be more effective in the market. In that regard, we are pleased to see the SEC propose the merging of the consolidated TAPE facilities and to propose governance changes to give customers more involvement in the SIPP plans. As we review the SEC's proposal in detail through the comment period, we will focus our comments and recommendations on ensuring the best interests of the market and the goals of the plan are maintained going forward. Switching gears, I would like to talk now about our efforts to advance our practices in corporate sustainability, both within our own operations and as we support our clients in solving complex challenges. NASDAQ launched several ESG-focused commercial offerings in 2019 to meet demand from our clients across our respective businesses. This includes our ESG advisory program for corporate clients, the NASDAQ Sustainable Bond Network, the NASDAQ Center for Corporate Governance, as well as publishing our global ESG reporting guide. And just this past week, we announced our new ESG workflow technology to simplify the ESG reporting process for public companies. Our offering is in response to corporates seeking to bring efficiency to a process that more often than not is plagued by data management challenges and survey fatigue. We are excited to be a strategic partner to our clients in this rapidly growing area of the market. We're also very proud to have announced that NASDAQ achieved carbon neutrality across our business operations, changing our energy sources where possible to renewable energy, and purchasing renewable energy certificates that offset the emissions impact of our office locations, data center usage, corporate travel, and employee commuting. NASIC is also actively exploring ways to further reduce both its consumption of resources and resulting emissions. As I've said, 2019 represented an important year in terms of progress on our strategic journey. As we continue on that path, I'd like to share our core ambitions for the next several years. First, It is to become the most trusted, most successful market technology and reg tech partner to trading firms, financial marketplaces, and new non-financial markets worldwide. Second is to evolve as a strategic market operator and specialized analytics partner to the investment management industry across index, active, and alternative management. Third is to serve as the destination exchange and partner for companies worldwide with unparalleled expertise across equity markets, investor relations, and governance. Fourth, to strengthen our position as a preeminent market operator in North America and Europe by enhancing the client experience across the trading, data, and connectivity aspects of our exchange complex. And fifth, to be the trusted provider of liquidity solutions for private asset classes, including private company shares, private equity funds, and other traditional and digital assets. We intend to execute against these ambitions through the combination of the incredibly talented and client-focused NASDAQ team, by understanding the clear needs of our customers as we work together, and lastly, by investing in and embracing the capabilities of today's most powerful technologies, in particular cloud and machine intelligence, notably through the deployment of the NASDAQ financial framework to accelerate the delivery to our clients. We look forward to updating you on our progress on these ambitions in the quarters to come. As I wrap up, I will summarize by saying our fourth quarter produced solid results for NASDAQ, completing a successful 2019 for our company. Moving forward into 2020, we remain relentlessly focused on advancing our strategic pivot to maximize opportunities as a technology and data analytics provider while maintaining segment leadership in our foundational marketplace businesses in the U.S. and Europe. I remain confident we are moving NASDAQ in the right direction this year as we capitalize on the strong momentum generated in 2019. And with that, I'll turn it over to Michael to review the financial details.