Nasdaq, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the NASDAQ fourth 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 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 Please go ahead, sir.

Good morning, everyone, and thank you for joining us today to discuss NASDAQ's fourth quarter and full year 2020 financial results. On the line are Idina Friedman, our CEO, Michael Potasnik, our CFO, John Zecca, our Chief Legal and Regulatory Officer, Ann Dennison, our Chief Accounting Officer and incoming CFO, 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 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. Good morning, everyone, and thank you for joining us. Before I begin my remarks, I would like to note that we're starting the new year at the depths of the COVID crisis. And we continue to focus on maintaining our employees' health and safety while executing on our critical role in facilitating capital raising, liquidity, and price discovery in the economies in which we and our clients operate. While we manage through this very challenging environment, the rollout of the vaccines provide a new hope for 2021. Throughout this health crisis, I have remained extremely proud of the resilience of NASDAQ's business, our team, and our client community. Over the past year, we have deepened our partnerships with our clients and worked together with them to ensure the resiliency of the capital markets to handle unprecedented volumes and to facilitate near record levels of capital raising across our listed companies. Capital markets and the role NASDAQ plays within them have never been more important as a critical source of funding and liquidity for innovation and job creation. including vaccine research and production, as well as for funding and liquidity needed to help companies weather through this very challenging period. We remain steadfast and unwavering in our commitments to our employees, our clients, and our mission as we enter 2021. My remarks today will focus on the following areas, NASDAQ's full year 2020 and fourth quarter of 2020 financial and business performance, the progress we've made to drive NASDAQ forward along our strategic direction, and our ambitions for 2021 and beyond. Turning to our results, I'm very pleased to report NASDAQ's strong financial performance for the fourth quarter and full year of 2020. First, for the fourth quarter, we achieved $788 million in net revenues in the fourth quarter of 2020, a 22% increase compared to the prior year period, while non-GAAP earnings per share of $1.60 rose 24% compared to the fourth quarter of 2019. Turning to the full year of 2020, we generated total net revenues of $2.9 billion, including 10% organic revenue growth from our solution segments, along with 21% organic growth revenue increase from our market services segment due primarily to elevated trading volumes in U.S. equities and options. Total organic revenue growth for the year was 14%. In terms of the annualized recurring revenue, or ARR, and software as a service, or SAS, revenue disclosures, we introduced at our November 2020 Investor Day, ARR ended the year at $1.58 billion in the fourth quarter of 2020, up 9% year-over-year, and annualized fast revenue was $456 million, up 11% year-over-year. The strong development across these types of revenues creates a healthy core to build off of going forward, independent of fluctuating trade volumes or market levels. 2020 was another year of robust execution for NASDAQ against a unique operating environment that none of us could have predicted a year ago. The strong results from the fourth quarter highlight the strength of NASDAQ's diversified product offering and business model, which allowed us to address the needs of our clients in a unique capital markets environment, including periods of elevated trading volumes, rising benchmark index valuations, and a very strong period of new listings and capital formation. Throughout the year, we also continue to invest organically and inorganically to advance our offerings, guided by our strategy to maximize opportunities as a technology and analytics provider, while also investing to sustain the strong competitive position of our core marketplace foundation. Because of the strong performance for the year, and in particular, the very strong finish in the fourth quarter, we enter 2021 with incredible momentum. We now have begun our fourth year since the 2017 announcement of our new vision for NASDAQ. Our full-year results illustrate how we can deliver on our strategy and, more importantly, how our disciplined, client-centric focus is creating value not just for our clients but for all of our stakeholders. Now I'm going to turn to specific highlights from our businesses, focusing mainly on fourth quarter results. Our investment intelligence segment delivered $247 million in net revenue during the fourth quarter, a 27% increase from the prior year period, primarily driven by especially strong momentum in index licensing, as well as positive contributions from both analytics and market data. We set new quarterly highs in both our index revenues of $97 million and end-of-period ETP assets under management, tracking NASIC indexes of $359 billion. As we noted in our Investor Day presentation, our investment intelligence segment has been repositioned for improved growth as we look to deepen our engagement with asset managers, asset owners, and consultants, and the clients from our market data and index franchises. We are diligently focused on building out this business to be the essential partner to the investment community. As we move into 2021, we're making investments to ensure these growth engines have the fuel to continue performing in the long term. For example, we're progressing our alternative investment workflow and data platform for asset owners with new capabilities coupled with our integration with Solovus. And we will continue to advance our expansion of our increasingly popular indexes and trusted data products to new clients and new geographies. Turning next to our market technology segment, we delivered $106 million in total net revenues for the fourth quarter, an 8% increase from the prior year period. This was driven by higher SAS revenues and changes in foreign exchange rates, while revenues from market infrastructure operator projects remained flat. Over the course of 2020, I'm pleased to report Market Technology welcomed 29 new customers, of which 25 chose our SAS products. As we stated in the previous investor calls, service implementations, change request projects, new order intake levels from our traditional market operator clients, and funding for new markets initiatives have been adversely impacted by pandemic-related factors. In the second half of 2020, we have taken actions, in particular, dedicating more resources to mitigate project delays and to better deliver for our customers. In a communication to our investors issued on January 12th, we noted in one particular project, specifically an on-premise enterprise software delivery of a complex post-trade clearing and settlement solution for an exchange group, Changes to our implementation timing and expected costs resulted in a significant, discreet $25 million expense for the period. The expense resulted from taking a one-time reserve to reflect the expected losses on the approximately 13-year fixed price contract. The need for a reserve resulted from an updated, detailed review of the implementation project with the client and with our internal technology and finance teams. We expect an increased implementation spend from higher resourcing for the project and a longer project duration due partly to the aforementioned COVID-related impacts, but also due to a prior underappreciation of this one project's unique demands. While some of the issues are very specific to this one project, we will apply what we've learned to ensure future contracts fit with the profitability objectives of the market technology business. As we examine the broader market technology business with our market infrastructure operator clients, we are starting to see improved sales opportunities as we exit 2020. However, we have not seen a full recovery to a pre-COVID sales environment. Both new and existing market infrastructure operator clients recognize that we're operating in a unique period with unusually elongated sales cycles. But they are engaging with us with incrementally more energy in the last few months to move forward with new projects and system upgrades. Additionally, our buy-side and sell-side technology business, led by our SaaS-based trade execution and trade surveillance offerings, maintains strong momentum throughout 2020 with 13% revenue growth for the full year, and we entered 2021 with a position of strength in this segment of our business. During the fourth quarter, we also announced an agreement to acquire Verifin, which provides more than 2,000 financial institutions in North America with a cloud-based platform to detect, investigate, and report money laundering and financial fraud. A statistic from the United Nations notes that up to $2 trillion in laundered money flows through the financial system every year. As criminals continue to find sophisticated methods for moving funds undetected, robust advanced anti-money laundering technology have become essential for financial institutions. Once closed, Verifin will complement NASDAQ's established RegTech leadership to create a global SaaS leader focused on the $13 billion market for anti-financial crime technology solutions. Our long-term mission together with Verifin is to become the market's leading provider of anti-financial crime technology. Despite the challenges we face in market technology in 2020, we remain highly confident in our strategy and in our ability to execute against new opportunities going forward. Moving to our foundational marketplace businesses, our market services segment delivered net revenues of $291 million during the fourth quarter of 2020, an increase of 29% from the prior year period. This area of our business maintained its strong competitive position across both the United States and Europe, while our US options business set a new quarterly trading volume record. The record fourth quarter helped make 2020 the most active year for options trading ever, averaging 27.7 million contracts traded a day, a 58% increase over 2019. NASDAQ led the industry in multiply listed options for the 11th year in a row. In fact, for the first time, NASDAQ was the largest options marketplace platform in the country for the year, including trading both index options and multiply listed options. Meanwhile, our European equities exchange complex set a new 10-year high on on-exchange market share in 2020. Finally, our corporate platform segment delivered revenue of $144 million in the fourth quarter, a 12% increase boosted by particularly strong ITO and private market activity in our listings business, as well as increased demand for our IR intelligence, ESG services, and board portal offerings. Our team successfully adapted all elements of the IPO process to a virtual environment, and as a result, for the eighth consecutive year, NASDAQ led the United States exchanges for IPOs in 2020 with 316, capitalizing on an incredibly busy year for new issues, and with a 67% overall IPO win rate, including an 83% win rate for operating companies and a 53% win rate for SPACs. Also for the second year in a row, NASDAQ ranked number one in the U.S. in terms of IPO capital raised, with $80.9 billion representing 52% of the industry total. The fourth quarter was particularly strong in terms of activity. We welcomed 142 IPOs, and this momentum is carried into 2021 with a particularly busy January. Meanwhile, our Nordic, Baltic, and First North exchanges continue to attract new companies from across Europe, adding 67 new listings, including 45 IPOs in 2020. We also had 20 new companies switch their corporate listings to NASDAQ, including American Electric Power, AstraZeneca, and Keurig Dr. Pepper. These 20 transfers represent an aggregate $282 billion in global equity market capitalization. Across the entire NASDAQ listing business in both the U.S. and the Nordics, Our corporate issuer count rose 8% in 2020, setting us up in a strong position as we begin 2021. On the private company side, our NASDAQ private market business set a new record for annual volume in 2020, facilitating 90 private company liquidity programs, and the fourth quarter was particularly busy with 49 transactions completed on the platform, a new quarterly record. Demand for our IR intelligence and governance solutions, particularly our ESG-related technology and consultative tools, drove growth in our IR and ESG services sub-segment, which saw an 8% increase in the fourth quarter. And lastly, during the period, we filed a new U.S. listing proposal with the SEC that seeks to standardize board-level diversity disclosures coupled with a recommended minimum diversity standard through a have-or-explain framework. As I mentioned at the beginning of my remarks today, 2020 represented an important year regarding the progress we've made on our strategic journey. As we continue on that path, I would like to reiterate the core ambitions we outlined at our investor day in November. In market technology, our core ambition is to be the trusted market technology and anti-financial crime technology partner, and our key 2021 initiatives for this segment are to deploy and drive adoption of SaaS market technology solutions, and to enhance our anti-financial crime business through the combination with Verifin. In investment intelligence, our core ambition is to be the essential partner to the investment community, and our key 2021 initiatives are to offer a full-service alternative workflow platform for asset owners and to accelerate the expansion of indexes and cloud-delivered data services to new clients and new geographies. In corporate platforms, our core ambition is to be the leading provider of capital market solutions to corporates, And our key 2021 initiatives are to expand NASDAQ's share of U.S. corporate listings and to establish the leading end-to-end corporate ESG reporting workflow tool to complement our IR and governance solutions. Lastly, in market services, our core ambition is to be the preeminent market operator for equities and equity derivatives in the U.S. and Europe. And our key 2021 initiatives are to continue to implement our multi-year migration of our derivatives markets to our next generation platforms. increasingly leveraging the cloud, and to expand our suite of distinctive equity and equity derivative trading products and solutions. 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 that our fourth quarter produced solid results for NASDAQ, completing a successful 2020 for our company. Moving forward into 2021, 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. We will officially celebrate NASDAQ's 50th anniversary next month. As we near this important milestone in our corporate history, I remain confident that we are moving the company in the right direction as we build upon the strong momentum generated last year. With that, I'll turn it over to Michael in a moment to review the financial details for his final earnings call before handing the mantle to Ann at the end of February. While we spent some time in our last earnings call and our investor day reflecting on Michael's incredible career here at NASDAQ and at PMX, on this occasion of Michael's 73rd consecutive and final earnings call, I would like to thank Michael for his tremendous service to NASDAQ. We will miss him greatly, but we are well prepared for his transition. as Ann Dennison steps into the role of CFO, and Jeremy School expands his responsibilities to become our new Chief Strategy Officer. Now, over to you, Michael.