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spk02: Good day, and thank you for standing by. Welcome to the NASDAQ first quarter 2021 results. At this time, all participants are in a 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. I would now like to hand the conference over to your speaker today, Ed Detmeyer, Head of Investor Relations. Please go ahead.
spk06: Good morning, everyone, and thank you for joining us today to discuss NASDAQ's first quarter 2021 financial results. On the line are Adina Friedman, our CEO, Ann Dennison, our CFF, 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, non-public information, and complying with disclosure obligations under SEC regulation update. I'd like to remind you that certain statements in this presentation 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.
spk00: Thank you, Ed. Good morning, everyone, and thank you for joining us. My remarks today will focus on NASDAQ's first quarter 2021 financial and business performance, as well as the progress we have made executing on our strategy. I would like to begin by acknowledging how deeply proud I am of the NASDAQ team's continued commitment to our clients during this period. A full year has now passed since our global workforce began working remotely, and I could not be more pleased with the first quarter results that our team has delivered to our stakeholders today. Our relentless client focus and NASDAQ's nimbleness allowed us to generate strong financial results for the first quarter of 2021. We also made important progress against our corporate strategy during the quarter with the completion of our acquisition of Verifin in February and the announced agreement to sell our U.S. fixed income business to trade web markets. Our performance during this period continues to underscore the resilience of NASDAQ's diversified product offering and business model, as well as our ability to address the needs of our clients in a rapidly changing environment. Now I will turn to our strong financial results for the first quarter of 2021. NASDAQ delivered net revenues of $851 million, an increase of $150 million, or 21% from the prior year period, driven by 17% organic growth in our solution segment businesses, and 17% organic growth in our market services business. The acquisition of Verifin and the changes in FX rates drove the remainder of the growth for the business in the quarter. Across our exchange businesses, the incredibly dynamic capital markets environment during the period, combined with our strong competitive positioning, resulted in record U.S. equity and options volumes and a record quarter for new listings. I'm also extremely proud of the progress we've made to continue to grow our annualized recurring revenue, or ARR, which is up 21% compared to the prior year period. This was driven by our continued focus on key secular growth opportunities that are powering our solution segments. We are seeing rising demand across our clientele for our solutions, including from institutional investors for analytics and workflow tools, from corporate clients for our ESG and IR solutions, and from financial institutions and marketplaces for technology that helps reduce financial crime. Our ARR growth was also boosted by the acquisition of Verifin. The strong operating leverage of our model was evident in the results. Our non-GAAP operating margins increased to 54%, up two percentage points compared to the prior year. As a result, we experienced a 25% increase in our non-GAAP operating income and a 31% increase in our non-GAAP diluted earnings per share in the period. Turning now to the specific highlights from the quarter, I will begin with our foundational marketplace in corporate businesses. Our market services segment saw net revenues of $338 million, a 20% increase from the prior year period, and a new quarterly revenue record for this business. This is primarily led by higher U.S. options and cash equities trading volumes. We're also seeing an increase in demand for trade management services connectivity solutions as clients adjust their capacity for a wider range of volume scenarios. NASDAQ's U.S. options market set a quarterly record of 892 million contracts traded during the period, an increase of 57%, while our U.S. equities market set a quarterly record of 153 million shares traded, an increase of 20% year-over-year. Additionally, during the period, we entered into a definitive agreement to sell our U.S. fixed income business, NFI, to an affiliate of TradeWeb Markets. The decision to sell NFI aligns with our strategy to maximize our potential as a major technology and analytics provider to the global capital markets. We expect the transaction to close later in 2021, subject to customary closing conditions. Next, our corporate platform segment delivered revenues of $155 million, a 21% increase, with robust contributions across each of the product areas in that business. The business was boosted by record levels of new listing activity, material contribution from NASDAQ private market following a record first quarter for private company transactions, and increased demand for our investor relations intelligence and ESG solutions. In our IR and ESG services business, we are seeing consistent and growing demand for our expanded suite of products, which has been carefully designed to help our clients measure, analyze, collaborate, and take positive action regarding their respective investor relations, governance, and sustainability programs. For example, in our IR intelligence unit, we saw six new client wins from our new expanded ESG advisory offering, a more in-depth solution that has lengthened and deepened our engagement with executive leadership teams as they seek to meet the demand from institutional investors and other stakeholders for greater clarity on their ESG strategies. And we are seeing this deeper client engagement result in continued sales momentum for our consultative IR advisory service and our NASDAQ IR insight workflow solution, which saw a combined 36% increase in sales during the quarter. In our listing segment, NASDAQ led U.S. exchanges for IPOs during the period, welcoming 275 IPOs that raised $74.4 billion, including 79 operating company IPOs and 196 SPAC IPOs. The NASDAQ stock market led U.S. exchanges with a 69% total win rate on IPOs, including a 77% win rate among operating companies and a 66% win rate amongst SPACs. Listing highlights from the first quarter include the IPOs of Bumble, Qualtrics, Affirm, Platica, and Petco. During the quarter, NASDAQ listed seven of the top 10 largest IPOs by capital raised. Companies have responded positively to our virtual IPO experience during the pandemic period, and we are excited and encouraged to see our iconic Bell Ceremony and IPO Day experience come to life again in Times Square, and in cities across the country through our unique remote bell ceremony. Highlights include going on the road during the quarter to Bumble in Texas and to Qualtrics in Utah. We look forward to welcoming our clients and capital markets partners safely to the NASDAQ market site for these milestone celebrations as we start to prepare for a post-pandemic period. Of course, I also want to acknowledge the strong start to the second quarter in listings, with in particular noting NASDAQ's successful direct listing of Coinbase, a global leader in infrastructure and technology for the crypto economy. The Coinbase listing represents the largest direct listing in history and was the largest ever initial public listing opening cross on NASDAQ. Now let me turn to our market technology and investment intelligence businesses. Our market technology segment delivered $100 million in revenues, including a partial period contribution from the Verifin acquisition, which we completed in February. Our annualized recurring revenue for the quarter was $416 million, a 62% increase year-over-year, including a 10% increase from our existing business, and an additional $134 million representing the annualized total of Verifin's first quarter subscription revenues, irrespective of the closing date or the temporary impact of the write-down of deferred revenues. To give you more transparency in how different parts of market technology are operating and progressing going forward, we have started to report our revenues from this segment of our business in two groups. The first is called Marketplace Infrastructure Technology, which will comprise our solutions for the full trade lifecycle to market infrastructure operators, banks and brokers, and non-financial market operators. And the second is called Anti-Financial Crime Technology, our offerings providing surveillance, risk management, and Verifint's anti-money laundering and fraud detection solutions. As we stated in previous investor calls, there are certain areas of our market technology business that have been inversely impacted by the pandemic-related factors, largely in the marketplace infrastructure technology business. And while the environment continues to be characterized by the logistical challenges to implementations and lengthened sales cycles, the actions we took last year to respond to those dynamics are resulting in stabilized but moderated revenue growth in the near term, albeit with short-term impact to segment profitability. More importantly, our longer-term vision for market technology remains on track, as demonstrated by the progress we've been delivering in new sales and revenues from SAS products and services, in particular, our anti-financial crime technology solutions. Excluding the impact of Verifin, SAS revenues within all of market technology increased 15% year over year. Turning to our investment intelligence segment, we delivered net revenues of $258 million, up $47 million, or 22% from the prior year period. Overall assets under management in ETP's benchmark to NASDAQ's indexes totaled $385 billion at the end of the quarter, an increase of 87% from the prior year period, and a new quarterly record. Additionally, trading of futures and options on futures contracts tracking NASDAQ indexes increased 31% year over year. I'm also pleased to see increasing adoption of some of our recent product innovations. In particular, AUM and the Invesco QQQ innovation suite, built on their strong debut in the fourth quarter of 2020, and now stands at approximately $2 billion in AUM in just five months after launch, making this one of the most successful new launches for NASDAQ's index business. Our analytics business delivered revenues of $48 million, an increase of $7 million, or 17% from the prior year period. Led by investment and Sylovis, this business experienced increased growth in the first quarter due to improvement in both new users and retention compared to the prior year period. On a sequential basis, new sales were up 23% from the fourth quarter of 2020, reflecting both a rebound in institutional investment industry demand following some temporary contraction in 2020, as well as increased realizations of the synergies between investment and Syllabus, as the combination helped drive 28 new accounts to Syllabus in the first quarter. These results underscore our strategy to create comprehensive workflow solutions for investment managers and institutional asset owners, from pre-commitment diligence to post-commitment portfolio tracking and secondary trades. Lastly, within investment intelligence, our market data revenues rose 11%, driven primarily by expanding international demand for our proprietary data products. As I wrap up, I would like to reiterate that NASDAQ remains diligently focused on serving the unique needs of our clients while we advance our strategic mission to capitalize on the opportunities that lie ahead of us. At our Investor Day in November, We articulated that our diversified business model was designed to provide us with the resiliency to drive disciplined growth across a variety of backdrops. Our recent success, especially in the first quarter, underscores the power of the NASDAQ platform and highlights that the strategy underpinning our repositioned franchise is resonating with our clients as we continue to reallocate capital to higher growth opportunities while maintaining leadership in our marketplace core. This focus has also resulted in many new instances of dynamic collaboration across our businesses, be it new product innovations or bringing advanced technology solutions to help our clients solve major industry challenges. For example, in our anti-financial crime technology segment, we're very excited about the work that we can do together with Verifin. This includes the potential for new client opportunities given our strong relationships with Tier 1 and Tier 2 banks, as the Verifin team continues to build out their solutions to increase confidence in the global financial system. Additionally, we're pleased to support their international expansion, especially into Europe, where Verifin has just landed its first client. Another great example is the intersection of our listings and index businesses. Listing the next generation of innovators, including many of the largest IPOs that have come to NASDAQ in the recent years, creates strong synergies to drive new product development in collaboration with our index business. For example, the strength and success of our flagship NASDAQ 100 index and our partnership with Invesco laid the groundwork for a recent launch of the Invesco Innovation Suite, including the Invesco NASDAQ Next Generation 100 ETF. Comprised of the 101st to the 200th largest non-financial companies listed on NASDAQ, the NASDAQ Next Gen 100 Index has been one of the fastest-growing ETFs that we've ever launched with a partner and includes companies such as Etsy and Roku, as well as many of the fastest-growing enterprise technology and healthcare companies listed on our market. As I look back at this quarter, I could not be prouder of the performance across the business. We officially celebrated NASDAQ's 50th anniversary in February, and given our rich history as a technology pioneer, I remain confident that we are moving NASDAQ in the right direction for many years to come. And with that, I will turn it over to Anne to review our financial results in greater detail.
spk07: Thank you, Regina, and good morning, everyone. 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 a file located in the financials section of our investor relations website at ir.nasdaq.com. I will start by reviewing first quarter revenue performance as shown on page 3 of the presentation and organic revenue growth on pages 4 and 14. The $150 million increase in reported net revenue of $851 million is the net result of organic growth of $118 million, including 17% organic increase in both market services and solution segments, a $14 million positive impact from acquisitions, and an $18 million impact from changes in FX rates. I will now review quarterly highlights within each of our reporting segments. I'll start with investment intelligence revenue, which increased $47 million, or 22%. Organic revenue growth during the period was 20%, reflecting very strong growth in our index business, as well as strong contributions from both the market data and analytics businesses. Annualized recurring revenue, or ARR, was $542 million and increased 13% compared to the prior year period. AUM and ETPs licensed to NASDAQ's indices rose 87% year-over-year to $385 billion, including a 25% increase from net inflows, and a 62% increase from changes in market impact. On page 19 of the presentation, you'll find our new disclosure, a net flow contribution to the year-over-year change in AUM. The segment operating margin of 65% increased one percentage point compared to the prior year period. Market technology revenue increased $19 million, or 23%. The increase reflects organic revenue growth of $3 million, or 4%, $12 million from the acquisition of Verifin, which closed mid-quarter, and a $4 million impact from the changes in FX rates. Excluding a temporary $7 million purchase price adjustment on deferred revenue associated with the closing of the Verifin transaction, Verifin revenues would have totaled $19 million for the partial quarter period following the February 11, 2021 close. On slide 10, we show the runoff of the remaining $23 million purchase price adjustment on Verifin's deferred revenue. The $3 million organic increase in market tech was driven primarily by higher SAS-based anti-financial crime technology revenues, in particular from our market and trade surveillance products. ARR for market technology was $416 million in the first quarter of 2021, an increase of 62% compared to the prior year period, largely due to the Verifin acquisition. Excluding Verifin, market technology ARR increased 10% in the period. In addition to the new market technology reporting Adina mentioned earlier, we are supplementing this with another revenue breakdown disclosing the recurring subscription SAS and support licensing revenues as well as the non-recurring professional services contributions to help investors and analysts track our progress as we continue to expand the SAS contribution across both our market infrastructure technology and anti-financial crime technology businesses. The segment operating margin was a negative 2%, but would have been a positive 5% when excluding the non-cash purchase price adjustment related to Verifin deferred revenue. The 5% margin is not a level that we believe reflects the potential of the business, and we continue to feel optimistic about our ambition for a margin that supports market technology being a Rule of 40 business in 2023 and beyond. While the impact of the Verifin purchase price adjustment on deferred revenue is temporary, and will be eliminated over the next four quarters, on a core basis, two main factors will drive our margin expansion over the coming years. First, our mix of SAS subscription revenues within market technology is increasing significantly. Looking ahead, we expect it to continue to grow as we execute our strategy. This is critical because our SAS businesses have approximately two to three times the average contribution margin of the on-premise solution. Second, we accelerated hiring in certain areas of our market technology business in recent quarters, and on a temporary basis, allocated more of our existing resources to relatively low-margin installation work, in particular, in the most complex on-premise clearing solutions. We expect the margin impact to gradually diminish over the coming years. Corporate platform revenues increased $27 million, or 21%. Organic revenue growth totaled $24 million or 19%, and there was a $3 million impact from changes in FX rates. The organic revenue increase was primarily driven by higher U.S. listings revenues due to an increase in IPOs and higher NASDAQ private market revenues, together with an increase in both IR and ESG advisory services revenues. NASDAQ private market revenues were about $6 to $7 million higher than the average quarterly run rate of 2020. And while this business has averaged an over 40% CAGR in the last three years, we would expect to see at least $5 million in sequential decline in 2Q21 from NPM's particularly strong first quarter. Corporate platforms ARR was a $487 million and increased 12% compared to the prior year period. The segment operating margin of 42% increased 7 percentage points compared to the prior year period and was driven by both the unusually strong activity on the NASDAQ private market, as well as from the substantial increase in the listed issuer base. Market services net revenues increased $57 million, or 20%. The organic revenue increase was $48 million, or 17%, and there was a $9 million impact from changes in FX rates. The organic increase during the period primarily reflects increases in cash equities and equity derivative net revenues. Due to higher industry trading volumes, and an increase in trade management services revenues. The segment operating margin of 67% increased 4 percentage points from the prior year period, reflecting strong operating leverage on record trading revenues. Turning to pages 9 and 14 to review expenses. Non-GAAP operating expenses increased $57 million to $393 million. The increase reflects a $24 million or 7% organic increase. an $18 million increase from the impact of acquisitions, and a $15 million increase from the impact of changes in FX rates. The organic growth in expenses reflects the sum of, one, relatively consistent low single-digit percentage increase related to hiring and wage inflation, two, higher compensation expense as variable performance-linked compensation increased, reflecting the company's outstanding growth, and three, costs related to what has been an incredibly active capital markets backdrop. For example, costs related to increasing our trading capacity, as well as marketing commitments supporting the extraordinary number of IPO wins in recent periods. Turning to slide 10, we are narrowing our 2021 non-GAAP operating expense guidance to a range of $1.57 billion to $1.62 billion. to reflect strong and broad-based organic revenue growth in the first quarter and the impact that growth has on variable expenses, like performance-based compensation and marketing commitments. As we look forward to the remainder of the year, overall, if performance continues to be strong, we would expect to come in at the high end of the expense guidance range. In addition, we expect year-over-year organic growth in expenses to be elevated, particularly in 2Q21 compared to 2Q20, as the prior year period had a significant reduction in travel and other in-office activity due to the onset of the pandemic, as well as lower new listing activity and less performance-based compensation due to the uncertain financial environment in 2Q20. Moving to operating profit and margins, non-GAAP operating income increased $93 million in the first quarter of 2021. Our non-GAAP operating margin of 54% increased two percentage points year-over-year. Net interest expense was $28 million in the first quarter of 2021, an increase of $4 million compared to the prior year period due to incremental interest expense related to the financing of the Verifin acquisition. Consistent with our reporting practice, interest expense related to acquisition financing that was incurred prior to the mid-quarter close of the transaction was excluded from non-GAAP results for this quarter. and therefore an incremental $3 to $4 million of Verifin-related interest expense will be reflected in the second quarter results. The non-GAAP effective tax rate was 24% for the first quarter of 2021, which includes a benefit related to the vesting of certain equity awards. For the full year 2021, we still expect our non-GAAP effective tax rate to be in the range of 25% to 27%, And barring any changes in the corporate tax landscape, we expect to come in near the bottom end of the range for the year. Non-GAAP net income attributable to NASDAQ for the first quarter of 2021 was $327 million, or $1.96 per diluted share, compared to $251 million, or $1.50 per diluted share in the prior year period. During slide 11, debt increased by $349 million versus 4Q20, primarily due to net issuances of $435 million of commercial paper used to fund a portion of the Verifint acquisition, partially offset by an $87 million decrease in the book values of our Euro bonds caused by changes in FX rates. Our total debt-to-EBITDA ratio ended the period at 3.4 times, a decrease from 3.5 times in the fourth quarter of 2020. During the first quarter of 2021, the company paid common stock dividends in the aggregate of $81 million and repurchased common stock in the amount of $162 million. Today, we are announcing a 10% increase in the regular quarterly dividend to $0.54 per share. Additionally, during the first quarter, the Board of Directors authorized an increase to the share repurchase program of an additional $1 billion, subject to the closing of the sale of our U.S. fixed income business and acceleration of the issuance of NASDAQ common stock related to the sale. As previously communicated, we intend to use the proceeds from the sale, as well as available tax benefits, working and clearing capital of the business, and other sources to repurchase shares in order to offset EPS dilution. We continue to expect the sale to be temporarily 2% dilutive to non-GAAP EPS in the 12-month period following the close, and we see immaterial dilution in periods thereafter. Overall, the actions taken during the first quarter support NASDAQ's accelerated evolution and allow the company to further concentrate its resources on technology, analytics, and ESG opportunities. Thank you for your time, and I'll turn it back over to the operator for Q&A.
spk02: Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from Rich Rapetto with Piper Sandler. Your line is open.
spk04: Good morning, Adina. Good morning, Anne. And I guess, you know, congrats on the strong quarter, unique operating conditions. So my question has to do, is broad, has to do with the growth rates that we're experiencing. If you look at the overall growth rate, if you look at corporate platforms and investment intelligence, you're running three to four acts of growth. you know, the guidance rate. And, you know, given, you know, you still get probably the comparisons, another quarter or two of relatively, you know, stable comparisons. So when do you look at adjusting, I guess, and a lot of this is recurring revenues as you, you know, highlighted. So when do you look at adjusting or the conservatism of the organic growth rate guidance?
spk00: Well, thank you. Well, I would say that we only changed our outlook for our growth rates, what I would say median to long-term revenue growth rates, about two quarters ago. So I'd say that, Rich, we still believe that those are the appropriate growth rates for at least based on, you know, kind of a three- to five-year time horizon. But having said that, I do agree with you that we are performing well ahead of our outlook, and we're obviously extremely pleased with that performance. I think that as we continue to gain more traction across our platforms, and particularly in the solution segments, you know, we certainly can look to make those adjustments, but we're sticking with the outlook at this point.
spk04: Okay. And they're going to be increased by Verifin as well. I guess that's
spk00: And we did actually make some adjustments to that when we announced the Verifin acquisition. So we did make those adjustments as part of that announcement.
spk04: Okay. Congrats on the strong quarter.
spk00: Yeah, really appreciate it.
spk02: Thank you. Our next question comes from Dan Fannin with Jefferies. Your line is open.
spk05: Thank you. Good morning. Good morning. My question is on the market tech segment, and you might have said this, but what was the verification contribution of the revenues in the quarter? And then as we look ahead, as you talk about the margin and reiterating the long-term outlook for the margin, could you help us in the short term? As you mentioned, increased costs plus, you know, the backdrop from a revenue environment. So are we looking at You know, what are we looking for to see this margin march higher? Is it kind of the normalization of expenses plus the revenue, or could we just see margins expand without, you know, based on where things sit and kind of the normal progression of the AR and other portions of the business?
spk07: Sure. Sure. So on your first question about Verifin's contribution, so within the numbers for the partial quarter, we had $12 million of revenues related to Verifin. And that included $7 million worth of deferred revenue write-down. So on a gross basis, it was $19 million for the partial quarter, which we closed the deal on Feb. Related to your question on market tech margins, You know, as we look forward, you know, to 2023 and our ambitions of achieving the Rule of 40 for the overall market tech, you know, we think the primary way we're going to get there is through revenue growth. You know, part of that will be bringing Verifint on board. And then the other two things I'd point to is we should look to, you know, we're going to continue to expand our SaaS offerings. We talked about, you know, the growth in our SaaS business and the fact that our SaaS businesses come at, you know, higher contribution margins. So as we continue to expand there, we'll see an impact on the margins. And then the last thing that I'd mention is just that, you know, we do have some incremental costs now to deliver on some of our larger, more complex projects. We've added costs, and we expect them to gradually decline over time. So when you put those three things together, you know, we expect to achieve, you know, that rule of 40 in 2023. And I think I'd just bring it back, you know, it's just important to note that we are confident in the, you know, the prospects of this business and our ability to be successful here.
spk04: Okay, thank you.
spk02: Thank you. Our next question comes from Alex Cram with UBS. Your line is open.
spk01: Yeah, hey, good morning, everyone. On the listings business, can you just describe a little bit more what happened in the first quarter? I know you – you dimensionalized the private market impact, I think 7 million, but even without that, it was still a very, very strong quarter on a sequential basis. And I know you highlighted SPACs in particular, and I know it was a very strong SPAC quarter, but usually the initial listings fees get amortized over many years. So just wondering, is the accounting different on SPAC listings or anything that you could point out to kind of bridge the gap and how sustainable that should be Going forward, given that some of the SPAC enthusiasm seems to be waning a little bit. Thanks.
spk00: Thanks, Alex. Well, I think that really when you look at the revenue performance in the listings business, it is on the back of three very strong years of new listings, which, of course, gets us to a new annualized recurring rate of listing revenue. We had over, I guess, in 2019, we had 189 IPOs. In 2020, we had over, I think, 314 IPOs. And then this year already, we've had 275 IPOs. You are right, though, with the SPAC listings, it's a little different. First of all, they tend to come in at the capital market because they want to pay the lowest possible fees. So contributions from SPAC, if we look at overall SPAC annual listing revenue, is only about 5% of our total listing revenues. It's not a huge contributor. And, of course, when they do combine with companies, then we have the opportunity to bring that company into NASDAQ as an operating company, and that tends to accrue to a higher fee rate. So there's a lot of opportunity from the SPACs as they make those combinations to increase our revenue contribution. But it also is a pretty limited risk in terms of if the SPACs are not able to find operating companies they want to combine with. But generally speaking, Alex, I think it's kind of the compounding effect of multiple years where we've been winning the majority of IPOs and, frankly, the vast majority of operating company IPOs. And it's just been a very favorable environment for us to be able to bring a lot of new companies to market. So I think it's a combination of all those things. And I should mention also we had 32 new listings in the Nordics in the first quarter as well. And so that's really bucking the trend in Europe. And we continue to see a lot of strength in our Nordic business as well.
spk01: Great. Thank you.
spk00: Yep.
spk02: Thank you. Our next question comes from Ari Ghosh with Credit Suisse. Your line is open.
spk15: So, Gina, and back on market tech. So, just looking at the anti-fame crime bucket, you know, the core verification contribution that you called out, that looks, you know, stronger than what we expected. Just looking at that $46 million bucket for the quarter, you talk about either, you know, either lumpiness or seasonal factors driving that during the quarter, if there's anything that we should be thinking about, or even, you know, as we think about the rest of the year. And related to that, you know, you've noted that you continue to see a little bit of pressure within the market tech But as a result of the pandemic, that hasn't entirely gone away. Any color as to, you know, if I think about the legacy business, X of Verifin, you know, thinking about the 8% to 11% organic growth rate, if you think about 2021, is that still a feasible and reasonable kind of growth rate? Again, I know it's more of a medium-term rate, but if we think about 2021, when we think about the legacy business, is that 8% to 11%-ish growth? still an achievable rate given some of the headwinds and pressures that you're seeing in the business? Thanks a lot.
spk00: Great. Sure. Yeah, on the anti-financial crimes side, it is largely a SaaS-oriented business. There are, you know, so we think about what we put into the anti-financial crime subsegment are the surveillance solutions to markets, Some of those are still on-prem, but they're long-term license revenues, not a lot of project-related costs because that's a more standardized service. Then you have the SaaS business related to the surveillance for our trading firms, and it's all SaaS. And then you have the risk management solutions to both markets and broker-dealers. And there, that has both a combination of on-prem and SaaS solutions. And then lastly, you have Verifint, which is entirely a SaaS business with very low professional fees. So generally speaking, what you're seeing in the quarters is a relatively recurring element of kind of what the potential of the business is. As I mentioned before, we did have 10% growth in our anti-financial crime business absent Verifint. So we continued to see really strong demand for all of those solutions. I think that in terms of the overall growth rate for market tech absent Verifin, as we mentioned, the market infrastructure technology part of the business has been more materially impacted by the pandemic, and we are still in a pandemic. So, you know, we're still not able to go visit clients. These are generally and oftentimes, particularly for new clients, these are large-scale decisions that they're making to have us partner with them to build and support them and their core business technologies. So, They tend to be sales cycles that result from relationships, and it's harder to establish and manage those relationships if we can't visit our clients. So that is still the case because of the pandemic. However, having said that, our existing clients, they really spent last year focusing on managing the very high-volume environment and a pretty dynamic capital markets environment as well. As they come into 2021, we are having more constructive conversations with them around thinking longer term again, thinking about how they want to continue to advance their technology. So we're certainly seeing encouraging signs of working with our clients. But as I said in my comments, we would expect that the short-term growth rates on that part of the business will be moderated. But over time, we're not changing our medium to long-term outlook on the overall business because we have confidence it will recover.
spk15: Great. Thanks so much.
spk00: Sure.
spk02: Thank you. Our next question comes from Mike Carrier with Bank of America. Your line is open.
spk12: Good morning, and thanks for taking the question. Adina, the organic growth has been great, and some areas have benefited from the favorable market backdrop that you mentioned for areas like index and listing. But has that moderated when we get past COVID-19? Can you highlight some of the areas maybe that may be impacted by COVID? I think that you've, you know, over the last couple quarters have talked about tech that could have potential upside, like to a more normal level, and maybe offset, you know, some of those areas that eventually normalize at some point. Thanks.
spk00: Yeah, sure. Thanks, Mike. So I think that there are two areas we've been highlighting that I think you're starting to see more of a recovery already in investment, but investment certainly in 2020 had more of an impact. And I would say investment and Solovish, I should say together. The investment management community and the asset owners were also dealing with a lot of change a very dynamic environment. They weren't sure whether this was going to be a sustainable market trend. And so they really pulled back on buying decisions around any sort of analytical tools. But what we're seeing, as we've mentioned in the first quarter, is that we maintain those conversations and relationships. We definitely, I think, through our all-in pricing model that we shifted to in 2019, really it helped us actually retain a lot of clients in 2020 and And therefore, now, going into 2021, we're seeing that investment managers and asset owners are back in the market to really find ways to, frankly, manage these very dynamic portfolios. And we've also done more to create a more all-in solution, particularly for asset owners across the Lovis and investment. So we're seeing a lot of nice upswing now coming into 2021 off the back of a pretty impacted 2020. I think market tech, as we've mentioned, particularly the market infrastructure technologies, the other area that's been impacted. And then across the rest of it, I would say that it's – and actually, I would say somewhat in the governance area, on the governance platform solutions, it's harder. We do a lot of work there, but again, I think a lot of corporates were dealing with downturns, were dealing with a lot of challenges there. And so it was a harder sales environment for that team as well last year. And we're starting to see some recovery there as well, but that would be another area where we hope that we would have some more pickup in 2021 and beyond.
spk12: Great. Thanks a lot.
spk00: Sure.
spk02: Thank you. Our next question comes from Chris Harris with Wells Fargo. Your line is open.
spk11: Great. Thank you. Can you update us on how you're feeling about Verifin's backlog and outlook now that the acquisition is closed? And I believe this was a business that was growing around 30% prior to the acquisition. And is that kind of like a good bogey to be thinking about going forward?
spk00: I can say that they ended 2020 very much on plan, and they've started 2021 very much on plan. So we're very pleased. I mean, the business, it's It's a great business, but it's also just a great team, and they're extremely focused. And I think that they're focused on the right path forward. So they're very much on plan with what we talked about when we announced the acquisition.
spk13: Okay, great. Thank you.
spk02: Thank you. Our next question comes from Brian Bettle with Deutsche Bank. Your line is open.
spk03: Great. Great. Thanks. Good morning, folks. Maybe also just on Verifin, another one, just in terms of that revenue contribution run rate, I think you said, and $19 million pro forma with the revenue recognition. So given that closed early to mid-February, should we be thinking about a core revenue number around that $35 million area for the second quarter, just trying to gauge sort of the volatility or stability of that revenue stream there? And then, Adina, if you could talk about maybe the thoughts around revenue synergies with being able to introduce the Verifin product and team to the Tier 1 and Tier 2 banks. I know that's a long timeframe that will evolve over time, but maybe some thoughts about how you think that might progress and add to the Verifin revenue base.
spk07: Sure, go ahead. Sure, so I'll start on your first question, Brian. You should think about Verifin. We shared as part of closing the transaction and announcing the transaction an estimate of about $140 million in gross revenues before the purchase price adjustment. So we've provided the details on how the purchase price adjustment is going to play out over the year. If you take that $140 and back out the purchase price adjustment and then apply a proration based on a February 11th close date, That's how you can think about, you know, what our expectations are at this point. For 2021. For 2021. For 2021, yep. Okay.
spk03: Okay.
spk00: With regard to the longer term, I have to say that we've already gotten off to a really, really great start in working with them and collaborating with them on client introductions and understanding where they want to focus their sales activities. But they also are really, really focused on continuing to invest in R&D, invest in the business so that we can really become the preeminent anti-financial crime technology provider to banks of all sizes, right? So the largest banks and the smallest banks. As we mentioned when we announced the deal and at closing, we will be working with them to support their investments and certain technology capabilities that we have that we think that can be additive to their capabilities that can really make it so that as we go into the Tier 1 and Tier 2 banks, we have just a fantastic solution for them. But that is, as you mentioned, a multi-year strategy. But we've gotten a lot of inbound demand from our Tier 1 and Tier 2 banks to understand what the solution is and how it works. We are actually able to go in with some point solution sales into particularly tier two banks that we think that are going to be relevant and allow us to land and expand. And then we had, or I should say Verifin had their first client sign up to help them with fraud detection in a European bank. So we're pretty excited about the fact that even just right on the heels of the acquisition, we're already seeing opportunities there. So we see a lot of good opportunities for us to collaborate with them that will support their growth rate over the longer term.
spk03: Sounds like great earlier progress. Thank you.
spk02: Thank you. Our next question comes from Simon Clinch with Atlantic Equities. Your line is open.
spk10: Hi. Thanks for taking my question. I wanted to carry on with the topic of Verifin here just because I think you mentioned before that you fully expect at some point to be able to accelerate the revenue growth as you penetrate Tier 1 and Tier 2, but it's understood that the There's a case of getting the product right for each particular market. And I'm interested that you just mentioned that you have signed their first European bank. Because I thought it wasn't long ago where you were still trying to tweak that product for the right market. So could you give us a sense of where you are in terms of the product readiness for tier one and tier two as it stands today?
spk00: Yeah, I think that they certainly have seen really nice demand pick up in the, what I would say, 50 billion plus in assets kind of banks that they continue to penetrate that sector quite successfully. And they have an all-in full solution that really supports kind of a full platform for those banks. As they've been going in and starting to engage with 100 billion and plus type of banks and really the very large banks, they are finding opportunities to come in with a specific solution, like a part of their offering. And that they do have part of their offerings are quite relevant to the needs of those banks in terms of what I would call more of like a point solutions approach. But what we want to be able to do is become that all-in platform partner to those banks over time. So there may be some shorter-term opportunities like we have with the European company to have a nice specific sale of a specific capability now that we're very, very good at. But then over time, I think that the real revenue opportunity will come if we can really build that out to become more of a holistic platform partner. So I just want to know, it's obviously very early days. There's a lot of enthusiasm, a great sense of partnership, and the ability for us to open doors. But it'll take time for us to get the solution and investment that we want to make in the business so that we can get that solution to become the preeminent platform across the entire industry.
spk10: Great. And just following on from that, Could you walk us through sort of what the competitive environment looks like in that sort of fraud detection and anti-financial crime space? It seems very fragmented to me, but I'm kind of curious, are you just competing with really inefficient internal systems predominantly at the banks, or are there actually other sort of legacy providers that you need to displace?
spk00: It's a combination of things. It is actually quite a fragmented market. It's also a huge market opportunity, right? So you're talking about $12 billion of potential TAMs. I think that we're positioned to be able to serve at least $6 to $8 billion of that TAM. So it's a huge market opportunity. It's a huge and growing problem. So I kind of equate it in some respects. Well, first of all, I think that there will be certain platforms that kind of emerge as the ones that the banks rely upon for all of their core work. And then there'll be point solutions and other innovations that come in on top of that that we should be in a position either to acquire or integrate or partner with to make it so that we can continue to manage the dynamic needs of our clients. So I think that is the case. But there are some incumbents, and I would say many are on-prem solutions that are not nearly as nimble or flexible, which is what I think Verifin's been very successful at displacing in recent years. as well as a lot of internal build, particularly for the larger banks, the internal build. And then at the very smallest end, there are a lot of small point solutions providers that Verifin also competes very successfully with. And they've done a nice job of working with a lot of the more core banking platform providers to integrate Verifint into those platforms so that as a client is taking one of these core platforms, the banking platforms, they know that they have the benefit of Verifint as part of that.
spk10: Great. Excellent. Thank you very much. Sure.
spk02: Thank you. Our next question comes from Ken Worthington with J.P. Morgan. Your line is open.
spk08: Hi, good morning. We've seen a steady increase in equity trading in dark markets and off exchange. Does moving volume back on exchange rank in your priorities when communicating with the new leadership at the SEC? And if so, what tools and approaches do you think make the most sense for regulators to consider should moving trading from the dark markets to the lit emerge as a top priority for them?
spk00: Great. Yeah, we're excited to have Gary Gensler come into the role of chairman. I think that it's great to have a leader within the SEC that really understands markets and market structure. So he is certainly a market structure expert. In terms of the priorities, I think on the back of some of the retail trading trends and the hearings that happened in Washington, I do believe this will be a focus area for the SEC, and they're already working on kind of a white paper approach. a thought piece around it to go out and get comments and input from the industry. When it comes to part of that is a discussion of the dark trading because when you look at the composition of the markets in the U.S., almost it's like 40 to 50%. It's like, you know, I would say 45% or so of the trading today is done in the dark. And the vast majority of that is retail. So that means that the retail orders are not getting exposed to the lit exchanges, and they're not therefore contributing to price discovery. And therefore, then you have to sit there and say, well, do we have the best reflection of price discovery if only half the market is being exposed and displayed? So I think, Ken, it is an area of focus for us. It's one of several things that I think that the SEC and us and others will be focused on as we look at how to continue to make market structure improvements. One of the great things about this business, honestly, Ken, as you know, it's like an eternal learning curve. It's one of the things that keeps me so interested, and it's just fascinating to see how the markets evolve. But as we continue to evolve those markets, I think that some focus areas that we think will be important are to look at settlement cycles to see if we can go from T plus 2 to T plus 1, as well as to look at the margin calculation process and giving people a little bit more clarity as to the margin obligations. The second is on short-scale disclosure. We do believe that long positions are disclosed, short positions are not, and it just seems like an unfortunate asymmetry. And then the third is on market structure and trying to level the playing field between exchanges and off-exchange players, but not in a way that's unnatural, but in a way that just allows us all to compete successfully. And, you know, one of those examples would be minimum tick sizes and minimum trade sizes and things like that, but that's one of several things that we would want to, you know, have the SEC consider.
spk08: Great. Thank you very much.
spk02: Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.
spk09: Good morning, and thank you for taking my question. I want to go back to NASDAQ private market. Could you please talk about how sustainable the activity is in NPM? And then after Coinbase direct listing, how should we think about the role of NPM in the whole crypto space? Thank you.
spk00: Great. Hang on. So MPM did have an outstanding quarter. And frankly, we had a really, really strong year in MPM last year, too. It really picked up in the second half. Like the first half, particularly as we got into the pandemic, became really slow. And then suddenly in the second half, we had a whole range of programs closed. coming out and it really picked, the activity picked up and gave us a great fourth quarter and now a great first quarter. I think that we should recognize that more and more companies are seeing, more and more private companies are seeing MPM as a good way for them to manage long-term liquidity needs of their employees and their investors. without having to bring themselves to the public markets or ahead of bringing themselves to the public markets where, as you mentioned with Coinbase, having some of that liquidity done in the private markets ahead of time kind of positioned them really well for their direct listing and gave them an investor base that they could walk into their direct listing with in a way that was very sustainable and strong. And so I think that would be a good example of how companies, I think, increasingly are using the private markets as a, as a kind of a lead-in into a direct listing. And we see that as a really encouraging sign for our business and for the relationships we have with our companies. I think the crypto space is a good question, Owen, as to whether more crypto-oriented companies will be coming into the public markets on the back of Coinbase and whether or not they also would choose that path. And if that's the case, then I think the NASDAQ private market is a natural way for them to manage that private liquidity ahead of an IPO.
spk09: Got it. Thank you very much.
spk00: Sure.
spk02: Thank you. Our next question comes from Kyle Voigt with KBW. Your line is open.
spk13: Hi. Thanks for taking my question. Maybe just a follow-up related to crypto. We're seeing a significant increase in institutional adoption and some large traditional financial players stepping into the space for the first time. I know I think your technology is powering some crypto exchanges today, but Just curious to hear whether you think there's an opportunity to eventually more directly participate in that space.
spk00: Great, thanks. The way I look at the crypto markets and the overall cryptocurrency economy is that it's still in a very early stage, and that's great because I think We've seen this really elegant construct come into the ecosystem in terms of what the blockchain and what you can do with it. you're seeing now some really interesting and tangible applications of it that have been more geared up until recently towards retail, but now you're starting to see institutional players recognizing that this is a contract that really could become part of mainstream commerce. So it's that classic product life cycle that's really starting to develop, and you're seeing where all the early experimentations turned to early businesses, turned into a proliferation of businesses, now are turning into you know, I would say more concentrated, but still very, very early, early lifecycle type of companies emerging. And so it does give us time to for us to figure out the right path for us. Our as you mentioned, our initial involvement in crypto has been with our technology. And that's been really great. You We are partners with several crypto markets on their surveillance and their technology. And that's one of the big concerns with crypto has been around making sure that the markets are fair for all participants. And so our technology is highly relevant there. Managing trading and frankly, the scalability of trading that they've had to deal with. Our systems are designed for scale. So I think that that also really gives us a real advantage. And then we actually have launched with a partner called a crypto index, and we've turned that into investable products outside the U.S., and we're hoping with a second partner to kind of hopefully bring that into the U.S. in coming months. So we do have some really interesting ways for us to participate in the crypto space, but we're still evaluating what should our long-term role be and how will the markets evolve, and obviously there are some great winners, including Coinbase, of course, in terms of developing the marketplaces of the future.
spk14: Thank you.
spk02: Thank you. Our next question comes from Ken Hill with Loop Capital. Your line is open.
spk14: Great. Good morning. I had a question about ESG within your complex there. You know, put up good 8% growth here. That seems to be above your targeted rate for corporate platforms. I know that's kind of overshadowed now by the listing services piece of it, but could you give maybe an outlook on ESG and how that's developing? within NASDAQ and then maybe how that varies by geography as well and what you would expect maybe here in the U.S. here over time. Thanks.
spk00: Sure. Yeah, we're really encouraged by what we've been doing to develop out our ESG solutions. And again, it is early days. At the investor day, we gave a view that we would hope that these types of new ESG services that we've launched and products that we've launched would generate at least $50 million over five years. And so $50 million a year, five years later, so I'm not sure if you're clear. But I think that we obviously are quite encouraged by the fact that we've had some really great adoption of our ESG solutions by companies. We also have actually incorporated our ESG solutions into our IPO package now, so we'll get more and more companies adopting them, and that gives us longer-term revenue opportunity with them as well. And we do obviously think that this is a trend that is here to stay. It's something that we believe will drive a lot of corporate decision-making in the future, and we want to be that partner to the corporates to help them navigate this landscape. The business that we have launched and the services we offer are as popular in the U.S. as they are in Europe. So we already have, you know, I would say we've had really good adoption of the products in the U.S. But in Europe, it's more mature. And so we've had more sustainable bond listings and other capital listings that also we support in Europe, in addition to helping our clients through standard setting and reporting, et cetera. I think that it's an interesting and dynamic space, and it's one we're quite encouraged by.
spk14: Got it. Thanks for taking the question.
spk02: Thank you. And that's all the time we have for questions. I'd like to turn it back to Adina for closing remarks.
spk00: Great. Thank you. And thank you very much for your time today. We are very pleased to see our businesses delivering strong organic revenue growth in the quarter. Guided by our strategic direction, we have a clear focus for the remainder of 2021 as we reimagine markets to realize the potential of tomorrow. I look forward to updating all of you on our progress in the months to come. And thank you and have a great day.
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