Nasdaq, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the NASDAQ third quarter 2020 results. At this time, all participants' lines are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll 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 Detmeyer, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us today to discuss NASDAQ's third quarter 2020 financial results. On the line are Idina 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 SEC regulation update. 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 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. All forward-looking statements speak only as of today, October 21st, 2020, and NASDAQ assumes no obligation to update or revise any forward-looking statements. Lastly, a quick programming mention. We are excited to be hosting our Investor Day on November 10th. Our senior leadership team will give presentations about our operations, opportunities, and strategy, and will be available for your questions. I know many of you on the line today are planning to participate. If you have not registered, please do so today at our IR website. I will now turn the call over to Dina.

Thank you, Ed, and good morning, everyone. Thank you for joining us. I'm pleased to report NASDAQ's financial results for the third quarter of 2020. With our strategic ambitions as our guide, we have been consistently focused on delivering results for our clients while creating sustainable value for our stakeholders. Our global workforce has demonstrated their nimbleness and ability to remain highly productive and available to our clients throughout this period. That focus is reflected in today's strong results, where we are seeing significant contributions from across our franchise. My remarks today will focus on business needed highlights and strategic initiatives from the third quarter. I will then touch on today's announcement about Michael's decision to retire, and then Michael will cover the financials. NASDAQ delivered another quarter of strong performance, driven by great efforts by our team, coupled with favorable market conditions. Here are some of the highlights. We welcomed 105 IPOs to NASDAQ during the period, which represents the highest number of IPOs per quarter on a U.S. exchange in the past decade. Conviction by investors to increase exposure to NASDAQ-focused thematic indexes, coupled with robust market performance, continues to support our expanding index business. As a result, we saw the AUM and our index products achieve another quarter of record highs alongside high trading activity and NASDAQ license index derivatives. Our market infrastructure performed exceptionally well during the peaks of volatility we observed earlier this year, particularly in March and April. We continue to experience strong volumes across our equities and options businesses in the third quarter, and we've continued to invest to enable us to have the capacity for future volatility as markets react to continually changing dynamics in the U.S. and globally. Our data and analytics business within information services, as well as our market technology business, continue to demonstrate their resilience with healthy growth in annualized recurring revenue, or ARR, in market tech, and targeted sales and new capabilities and products across our product suite. We are pleased to announce the launch of several new products during the period, including the cloud-deployed NASDAQ automated investigator for anti-money laundering, or AML, to SaaS solution for investigating financial crime for retail and commercial banks and other financial institutions. And in our licensed index futures business, we announced together with CME Group two innovative index products, a new futures contract on the NASDAQ 100 volatility index known as VolQ, and the first ever water index futures based on the NASDAQ VLS California Water Index. Early in October, we also announced an expansion of our partnership with Invesco for our NASDAQ 100 product suite, including a new NASDAQ NextGen 100 index ETF. Our results for the third quarter highlight the strength of NASDAQ's diversified product offerings and business model while operating in a unique capital markets environment in 2020. Our ability to execute against the significant demands and logistical challenges of COVID-19 enabled us to continue on our strategic journey and bring these new and innovative technology and index solutions to our clients. Now I will turn to our strong results for the third quarter of 2020. NASDAQ delivered net revenues of $715 million, an increase of $83 million, or 13% from the prior year period, driven almost entirely by organic growth. Net revenues in our market services business grew 15%, while revenues in our non-trading segments rose 12% from the prior year period. Operating leverage was particularly strong, with non-GAAP operating margin expanding nearly 200 basis points to 52%, and contributing to the non-GAAP EPS growth of 20%. Turning now to the specific highlights from the third quarter, starting with our foundational marketplace businesses. Our market services segment saw net revenues of $259 million, a 15% increase from the prior year period, led by a 35% increase in cash equity net revenues, as well as strong growth in both the equity derivatives and trade management services businesses. While, of course, industry volumes were a main contributor to this performance, I do want to bring attention to the strong competitive positioning that market services has established and which continued in the third quarter. In particular, we have enjoyed relatively stable market share in U.S. equities, an area where we feature the single largest liquidity pool with the NASDAQ stock market, the largest of our three equities exchanges. Additionally, our Nordic equity franchise, with a 77% share on exchange trading, was up nearly 500 basis points year over year. And in our U.S. options trading complex, we continue to lead the industry with a 37% share of multiply listed options. The elevated volumes we've experienced are the result of both high investor engagement and a multitude of macro and geopolitical uncertainties. While the activity levels can change quickly, we believe that the U.S. presidential election remains a big focus for investors, and we anticipate that our marketplaces are likely to continue to contribute at high levels as we progress through the final quarter of the year. Our corporate services segment delivered revenues of $132 million, a 6% increase, boosted by new listing activity and continued demand for our governance and investor relations intelligence solutions. In our listing services business, NASDAQ led US exchanges for IPOs during the period, welcoming 105 IPOs for a 79% win rate for operating company listings and an overall win rate of 65% when including SPACs. We are proud to welcome GoodRx, Lee Auto, Jamf Holding Company, and Encino as just a few of the highlight listings from the quarter. Our quarterly win rate of SPACs has also been rising from 30% in the second quarter to 51% in the third quarter. In addition, we were honored to welcome six companies who have switched their listings from the New York Stock Exchange to NASDAQ during the period, with an aggregate global market capitalization of $187 billion, including AstraZeneca and Keurig Dr. Pepper. This brings our cumulative exchange switch market cap to over $1.8 trillion since 2005, with over $1 trillion of that value switching in just the last five years. When it came to their decision to switch exchanges, these issuers identified strongly with the innovative spirit of NASDAQ's listing platform, with the expanding community of listed issuers, recognizing the opportunity to leverage our IR and governance solutions to improve how they engage with critical stakeholders, And lastly, for the larger switches, to potentially increase their representation in the NASDAQ family of indexes by qualifying for the NASDAQ 100. In the third quarter, corporate services revenue grew 6% with a balanced contribution from both governance and IR solutions. We are pleased that rising secular demand for insights that help companies better understand and engage the shareholders is more than offsetting the impact of spending reductions by companies and sectors more negatively impacted by COVID-19. We believe that our successes during the quarter underscore how NASDAQ continues to be the destination exchange and partner of choice for companies worldwide with unparalleled expertise across equity markets, investor relations, and governance. Now let me turn to our information services and technology businesses. In our information services segment, we delivered net revenues of $238 million, up $40 million, or 20% from the prior year period. Index AUM rose to $313 billion versus $207 billion in the prior year period, up 51%, while contract volumes in the NASDAQ-licensed index futures that trade on the CME rose by more than 90%. Each of these contributed meaningfully to the index revenue rising $30 million, or 54%, year over year. While the NASDAQ 100 family of indexes has had market appreciation materially above broader market averages, 37% of the increase in AUM year-over-year came from positive organic investor inflows, and we're working with our partners to meet rising investor interest in NASDAQ schematic indexes in several ways. For example, as I stated earlier in my remarks just last week, Invesco introduced the QQ2 innovation suite in partnership with NASDAQ, giving a wider population of investors access to the NASDAQ 100 index for a variety of investment structures, and providing exposure to the NASDAQ Next Gen 100 Index through a new ETF. Additionally, we launched VolQ, a new futures contract on the NASDAQ 100 Volatility Index, and announced plans to launch a futures contract based on the NASDAQ Bellas California Water Index. Our investment data and analytics revenues increased 13% from their prior year period during both by the incorporation of Sylovis and the organic growth in our leading institutional asset allocation solutions. Market data rose 5% with contributions from across our North American and European proprietary products as well as the tape land revenues. Growth during the period was driven by new sales and increased retail investor usage worldwide, particularly in new geographies like Asia Pacific and Latin America. In addition, this area of the business saw new customer expansion and new product launches driven by the launch of the NASDAQ Cloud Data Service, a service that we believe provides significant technical cost reductions and quickens the time to market for clients seeking real-time data solutions. Lastly, our market technology segment delivered $86 million in revenues and signed $84 million in new order intake. ARR in the quarter was $278 million, a 9% increase year-over-year. However, total revenue rose only nominally in the third quarter compared to the prior year, as the growth in the more stable SaaS subscription and recurrent licensing fees that comprise our ARR with offsets by lowered non-recurring revenues associated with new service implementations and change requests. As we stated earlier in 2020, service implementation, change request projects, new order intake levels, and funding for new markets initiatives have been adversely impacted by the pandemic-related factors. We continue to expect to see in the short term mostly logistical growth headwinds that underpin the risk of market technology being below the bottom of our medium-term growth objectives for the current year. We have taken actions that we hope will mitigate pressures on our non-recurring market technology revenues in the coming period. For example, we've developed new ways of improving execution for important project phases in a completely virtual environment, and we've increased hiring of technology staff as part of an effort to quicken the pace of our full slate of existing implementations to their production phases. The increased technology staff to manage the large delivery project has had an impact on the short-term margins, and we are managing this expense increase carefully as we continue to be focused on driving margin expansion as the business continues to grow. Taking a step back from the near-term impact of the pandemic, our convection has not changed about the medium- to long-term opportunity for market technology. A major component of this strategy is our commitment to operating and providing best-in-class SaaS solutions across the transaction lifecycle. Our marketplace services platform, which launched in June, gives clients a complete transaction lifecycle functionality on a single platform, and we've seen positive response and growth in demand for the platform over the quarter. In 2020, year-to-date, we've increased the count of sales to entirely new clients. the vast majority of which have chosen to implement our next-generation SaaS-enabled services. Specifically, we signed eight new market infrastructure operator clients to our SaaS offerings, and we've signed 12 new trade surveillance clients so far this year. We've also had solid success in expanding our existing client relationships in our trade surveillance business. We look forward to updating you both in addressing the near-term challenges we are navigating as well as our progress in ramping adoption of our next-generation products and services in the coming period. Now let me take a moment to address today's announcement that Michael will be retiring in early 2021 after a very distinguished 30-year financial services career. Michael joined NASDAQ in 2016 as CFO to lead a dynamic team responsible for finance, treasury, strategy, investor relations, facilities, and risk management. His extensive operational expertise and industry reputation for strategic thinking, creative resource management, and managing through competitive and evolving landscapes made him a perfect fit for us during what has been an especially important phase in our growth as a company. Michael has been an invaluable member of the executive leadership team during this time at NASDAQ. He played a particularly important role in our management team's strategic review of our business in 2017, after which we realigned our vision, mission, and corporate strategy to embrace our core strengths in data analytics and technology, our strategic pivot, as we refer to it. Michael has since played an instrumental role in the execution of that strategic pivot. For example, he worked closely with me to establish a clear, consistent capital deployment and return framework, including an annual review of our business portfolio, and effectively managed the balance sheet to improve liquidity and lower borrowing costs. Michael has been a wonderful partner to our business unit leaders, bringing creative ideas as well as a structured approach to cross-business unit initiatives. He has worked extensively with our business units to evaluate and execute on organic and inorganic opportunities, and he oversaw the launch and development of our venture investment group. Michael has been an outstanding CFO, bringing focus, drive, creativity, and determination to his role every day. And on behalf of the entire team at NASDAQ and the Board of Directors, I want to thank you, Michael, for his leadership and dedication to our company and to our values. When Michael retires at the end of February next year, I'm very pleased to announce that Ann Dennison, who currently serves as Senior Vice President, Controller, and Chief Accounting Officer, will become Executive Vice President and Chief Financial Officer. Ann joined NASDAQ in 2015. And since 2017, she's been leading an extensive multi-year modernization of the company's financial operations infrastructure. These efforts include NASDAQ's migration to a modern financial consolidation and reporting system, leveraging Workday Financials, the introduction of a new enterprise resource planning platform and surrounding systems, and the development of a corporate data strategy and intelligent automation program that are delivering interesting insights and powerful efficiencies. Additionally, Anne added to her responsibilities in 2017 when she took on leadership of the financial planning and analysis team, which partners with the business units and expert teams to develop and maintain our detailed forecast and budget. Anne is a dedicated leader with a deep understanding of our business and our long-term vision. She has made significant contributions to NASDAQ's financial soundness in her five years at the company, and her diligence and expertise will be important factors in our growth strategy. With her combination of experience and leadership skills, as well as her thorough knowledge of NASDAQ's business and financial operations, Anne is the obvious and best choice to become NASDAQ's next CFO. I'm excited for our analysts and investors to meet Anne in the coming months as Michael and Anne work together to transition the role between now and the end of February. As I wrap up, I will summarize by saying that we are very pleased with the strong results we delivered in the third quarter, and we remain focused on advancing our strategic missions. Our results highlight the strength of NASDAQ's diversified product offering and business model, capitalizing both on opportunities presented by this year's unique capital markets backdrop, including elevated trading volumes, rising index valuations, and strong IPO issuance. We believe that our ability to execute against the significant demands and the logistical challenges of COVID-19 has enabled us to continue on our journey while prudently advancing as a technology and analytics provider. And with that, I will turn it over to Michael to review the financial details.