Nasdaq, Inc.

Good day, and thank you for standing by. Welcome to the NASDAQ second quarter 2021 results. At this time, all participants 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. I would now like to hand the conference over to your speaker today, Ed Dittmeier, Senior Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss NASDAQ's second quarter 2021 financial results. On the line are Adina Friedman, our CEO, Ann Dennison, 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 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 as contained in our press release and periodic reports filed with the SEC. I will now turn the call over to Adina.

Thank you, Ed, and good morning, everyone. Thank you for joining us. My remarks today will focus on NASDAQ's second quarter 2021 financial and business performance, as well as the progress we've made to drive forward along our strategic directions. I would like to begin by acknowledging the NASDAQ team's deep commitment in delivering results for our clients, while creating sustainable value for all of our stakeholders. NASDAQ's mission reflects our focus on becoming the premier platform and ecosystem for the global capital markets and beyond, with unmatched technology, insights, and markets expertise, and we made important progress during the second quarter. Our financial results demonstrate our business's ability to capture opportunity in a unique economic environment, even as we continue to strengthen its position for long-term growth. We see strong demand for many of our products and services as corporate issuers, institutional investors, banks, brokers, and marketplace operators all navigate today's rapidly changing world. Our core foundational marketplaces benefited from an active capital market backdrop that saw record-setting industry, U.S. equity, and options trading volumes in the first half of 2021. Our client-first model has also driven our ability to win the majority of new listings in one of the strongest periods of industry activity in years. Meanwhile, expanding demand from institutional owners for index strategies as well as asset allocation and portfolio management tools, from banks for modern anti-financial crime solutions, and from corporates for ESG and investor relations solutions underpinned our performance in the solution segment businesses. Our performance in these businesses is also a testament to our client-centric approach and strategically aligned offerings as we invest in and grow new and innovative technology to meet that demand. We also achieved other important milestones against our corporate journey this quarter. First, NASDAQ completed the sale of our U.S. fixed income business to trade web markets at the end of the second quarter. Second, we announced our strategic investment in PuroEarth, a leading carbon removal marketplace. Along with the launch of our new ESG data hub, these solutions further expand the ways that we can partner with our clients to support their unique sustainability efforts. And third, we announced yesterday that we are starting an exciting next chapter for the NASDAQ private market as part of our partnership with a group of leading banks in the private market space. It highlights both the success of the private market platform we developed at NASDAQ and the growing interest in developing a robust ecosystem for private company liquidity. All of these actions underscore our commitment to our strategy and allow us to reprioritize elements of our unique business model to advance our focus on the most impactful secular opportunities. I will now turn to our financial results from the second quarter of 2021. Overall, NASDAQ delivered net revenues of $846 million, an increase of $147 million, or 21% from the prior year period. Driven by 18% organic revenue growth in our solution segments, and 10% organic growth in our market services businesses. We continue to execute against key secular growth opportunities, as illustrated by strong momentum in our institutional investor analytics and anti-financial crime solutions businesses, as well as the broad-based growth in total company ARR of $1.8 billion. This equated to an increase of 22% compared to the prior year period, reflecting both the acquisition of Verifin and a 12% increase in our existing ARR. Turning now to specific segment highlights from the second quarter, I will begin with our foundational marketplace and corporate businesses. Our market services segment saw net revenues of $312 million, a 13% increase from the prior year period. Market services transactional revenues, the sum of our cash equity, equity derivative, and fixed income commodities trading businesses increased by 27% in total in the second quarter of 2021 compared to the prior year period. with the largest contributor of this being our equity derivatives revenues, where we experienced strong increases in U.S. options industry volume. NASDAQ's options markets specifically traded $782 million of multiply listed options contracts, an increase of 28% year over year. Driven by an active, dynamic equities market, we have also seen increased levels of activity from companies seeking to tap the public market to raise capital. which has resulted in a 13% increase in the overall number of operating companies listed on the U.S. on NASDAQ in the last 12 months. Specifically, we have 352 more operating companies listed on NASDAQ in the U.S. than we did in June of 2020. The increase in our number of listed companies naturally contributes to higher industry volumes and contributes to higher trading on NASDAQ in particular, since we have approximately two times higher market share in our own listed stocks than we have in stocks listed on other markets. I would also like to highlight for a moment another record-breaking NASDAQ closing cross during the annual Russell U.S. Index's reconstitution, which occurred in late June. The closing cross successfully executed 2.3 billion shares of NASDAQ-listed securities, representing approximately $81 billion in market value, and occurred in under two seconds. This closing cross was 760 million shares larger than our second largest closing cross ever, which occurred in March of this year with the Triple Witch expiration. I'm incredibly proud of our team as this milestone underscores our leadership in operating the industry's most robust and resilient market infrastructure. Next, our corporate platform segment delivered revenues of $154 million, a 22% increase year over year. The business continues to thrive with elevated levels of new listings since the market recovery in the second half of 2020. In our listings business, NASDAQ again led U.S. exchanges for IPOs during the period, welcoming 135 IPOs that raised $31.7 billion, including 88 operating company IPOs and 47 SPAC IPOs. The NASDAQ stock market led U.S. exchanges with a 78% total win rate on IPOs, as well as executing the largest direct listing ever, Coinbase. In addition to new listings, we also welcomed 10 switches in the second quarter of 2021, representing a combined $183 billion in market value, including Honeywell, a Dow 30 company. The total market value of all companies transferring to NASDAQ since 2016 now exceeds $1 trillion. Meanwhile, our Nordic listing platform hosted 62 IPOs in the second quarter, bringing the total to 86 in the first half of 2021, contributing to an 11% year-over-year increase in the Nordic listed issuer base compared to the prior year quarter. NASDAQ is proud to be the exchange partner supporting companies throughout their corporate lifecycle, with our commitment to providing issuers with an industry-leading market model and a full suite of investor relations, board engagement, and ESG solutions. Revenues in our IR and ESG services increased $4 million, or 8%, to $56 million in the second quarter compared to the prior year period, as we continue to see strong demand for our investor relations and advisory and ESG product offerings. The economic impacts of the pandemic, combined with the sudden and likely lasting landscape of virtual or hybrid investor engagement, has increased corporate's focus on investor relationships. and has accelerated their professionalization of their ESG programs, both of which has intensified the demand for new data and tools to power their programs. Now let me take a minute to talk about the actions we've taken to advance the NASDAQ private market going forward. This week we announced an agreement to contribute NASDAQ private market into a joint venture with Silicon Valley Bank, Citi, Goldman Sachs, and Morgan Stanley. This creates a new entity to build upon NPM's success becoming the leading marketplace platform for issuer-led private company tender transactions. The partnership will enable increased investment in a broader set of capabilities designed to enhance NPM's position as the go-to marketplace for private company liquidity. Nasdaq Private Market will continue to expand from its foundation of facilitating private company tender programs to enhance and refine its buy-side book building, auctions, investor block trades, and pre-direct listing continuous trading programs. Additionally, the platform will provide end-to-end settlement, and through the new ownership structure, will create a unique and powerful distribution network serving private companies and institutional investors. NASDAQ's market technology business will be contracted to supply MPM with its technology platform on a go-forward basis. NASDAQ Private Market's talented team has made strong progress in the seven years since we established the business as measured by the close relationships we've built with more than 250 leading private companies worldwide and the more than $30 billion in transaction volume that they've executed for many of the world's largest private companies. This new entity will expand upon that success going forward. In the last 12 months, ended June 30th, revenues for NASDAQ private market increased $13 million or approximately 200% over the prior year period. Going forward with our partners, we expect to unlock significantly more value for our clients and shareholders by advancing the market for private company shares with a high-integrity, advanced platform that facilitates liquidity in new ways and builds on the momentum that we've developed over the past several years. Now let me turn to our market technology and investment intelligence segments. Our market technology segment delivered $117 million in revenues, a 39% increase year-over-year, including a 5% organic increase from our existing business and an additional $27 million contribution from Verifin. Revenues in the second quarter of 2021 also included a temporary $10 million purchase price adjustment on deferred revenue associated with the closing of the Verifin transaction. In our anti-financial crime technology business, revenues increased $29 million, or 88%, driven by the inclusion of revenues from Verifin, as well as the continued growth in surveillance solutions. With Verifin as part of NASDAQ for its first full quarter, we continue to find great opportunities working collaboratively with the Verifin team to open doors to new clients and expand their footprint. Verifin signed 36 new clients during the second quarter, and we remain extremely pleased with the business and its growth potential as it achieves its mission of fighting financial crime. In our marketplace infrastructure technology business, revenues increased $4 million, or 8%, in the second quarter of 2021 compared to the second quarter of 2020. New order intake for market technology hit a six-quarter high at $81 million, excluding Verifin. Market technology ARR increased 9% year-over-year, also excluding the impact of Verifin. If you include Verifin, NASDAQ market technologies ARR increased 61%. Turning to our investment intelligence segment, we delivered net revenues of $263 million, up $50 million, or 23% from the prior year period. Overall assets under management and ETPs benchmark to NASDAQ's indexes totaled $415 billion at the end of the quarter, an increase of 53% from the prior year period. We are pleased to expand our long-standing partnership with Invesco during the second quarter with the launch of two new thematic technology ETFs, tracking the NASDAQ Biotech Index and the PhilX Semiconductor Sector Index. These two indexes are the longest-standing benchmarks for their respective sectors and in the past year have increased in relevance for investors given the recent pandemic-related events. We also continue to see strong global interest in our index franchise, with 12 of 15 new licensed ETP launches in the second quarter occurring outside of the U.S. We are committed to bringing investment opportunities through our index partnerships and empower investors globally with access to diversified investment opportunities. For example, XP Inc., a technology-driven investment management platform in Brazil, launched one of the first locally listed NASDAQ 100 ETF offerings in Latin America during the second quarter, while Hashtex, also from Brazil, partnered with NASDAQ to launch the world's first ETF available in Brazil to investors utilizing the NASDAQ crypto index. During the quarter, two ETP sponsors, BlackRock and Vanguard, announced that they would be switching and consolidating their relationships with some index providers, and as a consequence, certain of their products would no longer be licensing NASDAQ indexes. While we're always disappointed to lose sponsors, the loss had a minimal financial impact, which Anne will touch on in her comments. And the continued expansion of our relationships with the broader sponsor universe, as well as the continued innovation and growth of the index product suite, gives us great cause for optimism going forward. Turning next to our analytics business, we delivered revenues of $50 million, a 14% increase from the prior year period due to growth in investment and syllabus revenues from higher new sales and increased retention. Driven in part by the success of the enterprise license contracting initiative, which spread usage of investments unique analytics to more users in more business areas of our client base. Lastly, revenues in our market data business rose 5% as compared to the prior year period to $106 million, driven primarily by expanding international demand for proprietary data products. As our business, our clients, and the broader markets begin to prepare to operate in a post-pandemic environment, we are excited to carry forward the strong momentum from the first half of 2021 and into the future. One increased area of focus for us is ESG. which we have seen growing interest from a range of clients in both the U.S. and Europe. NASDAQ's position at the intersection of financial, corporate, and regulatory communities gives us a unique perspective on corporate sustainability. From this vantage point, we're actively engaging with clients to help them successfully navigate the complex and fast-maturing ESG landscape. We were thrilled to have the opportunity in the second quarter to add Puro Earth's Marketplace for Carbon Removal Solutions to help our corporate clients meet their emission reduction commitments. At the same time, as a public company ourselves, we engage with our employees and our communities to improve our own practices, performance, and transparency on our own ESG journey. In that regard, I encourage our stakeholders to review our recently published and expanded sustainability report, which is available on our website. As I wrap up, I want to highlight how each of our businesses has expanded the diversity and depth of their client base in recent years, which underpins the strength and resiliency of the NASDAQ platform as we move through each quarter. Our strong engine of talent and technology is allowing us to expand our position in the capital markets in ways that can capitalize on the powerful secular tailwinds in a post-pandemic period. We're leading NASDAQ into the second half of 2021 with incredible momentum, and I look forward to updating all of you on our progress in the months to come. And with that, I will turn it over to Anne to review our financial results in detail.

Thank you, Adina, 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. Reconciliation of U.S. GAAP to non-GAAP results can be found in our press release, as well as in a file located in the financial section of our investor relations website at ir.nasdaq.com. Before we review the financial comparisons and developments, I want to cover some reporting changes going forward related specifically to some of the strategic developments within the business portfolio that Adina mentioned previously. First, with regards to the NASDAQ Private Market, or NPM, as recently announced, we have contributed this business to a newly formed joint venture for which we will own a minority interest. As a result, we will no longer consolidate the results and instead we'll be recognizing our share of net income as a non-operating item consistent with how we treat other unconsolidated investees. Second, with regards to both NPM and NASDAQ fixed income or NFI, beginning in the third quarter of 2021, we will reclassify the revenue and operating expenses of these two businesses out of the corporate platforms, market services, and investment intelligence segment results for all prior periods, and move them into corporate items so that the business results of each of these segments can be compared to prior periods on a like-for-like basis. On slide 12, we provide a table previewing the reclassified operating segment results. Now I will start by reviewing second quarter revenue performance. The 21% increase in reported net revenue of $846 million is the result of organic growth of 15%, including 18% organic increase in the solution segments and a 10% organic increase in market services, a 4% positive impact from acquisitions, and a 2% positive impact from changes in FX rates. I will now review the quarterly highlights within each of our reporting segments as shown on pages five through eight of the slide presentation. I will start with investment intelligence revenue, which increased $50 million, or 23%. Organic revenue growth totaled $47 million, or 22%, and there was a $3 million positive impact from changes in FX rates. Organic revenue growth during the period reflects very strong growth in our index business, as well as strong contributions from both the analytics and market data businesses. Annualized recurring revenue, or ARR, was $547 million, an increase of 11% compared to the prior year period. AUM and ETPs licensed to NASDAQ indices rose 53% compared to the prior year period to $415 billion, including $47 billion from net inflows and $113 billion net increase from market appreciation, partially offset by $7. billion in negative net impact related to an ETP sponsor switching its index provider. The investment intelligence segment operating margin of 65% increased three percentage points compared to the prior year period. As Adina mentioned earlier, we will see an additional impact to AUM in the third quarter of 2021 related to previously announced ETP sponsor index switches. The total revenue impact of all of the 2021 switches announced to date is estimated to be approximately $3 million per quarter. Market technology revenue increased $33 million, or 39%. The increase reflects organic revenue growth of $4 million, or 5%, $27 million from the acquisition of Verifin, and a $2 million positive impact from changes in FX rates. Excluding a temporary $10 million purchase price adjustment on deferred revenues associated with the Verifin transaction, Verifin revenues would have been $37 million. The organic revenue increase, which excludes revenue generated from Verifin during the first 12 months after the acquisition closed, was driven primarily by higher support and licensing revenues and higher SaaS-based surveillance solutions revenues. ARR for market technology was $432 million in the second quarter of 2021, an increase of 9% compared to the prior period, excluding the impact of Verifin. Including Verifin, market technology ARR increased 61% in the period. The market technology segment operating margin was 15% in the period. Market technology expenses include a partial reversal of the reserve recorded in the fourth quarter of 2020 of approximately $6 million as we finalized client negotiations and updated our estimate of cost to service our client agreement. Horford Platform's revenues increased $28 million, or 22%. Organic revenue growth totaled $25 million, or 20%, and there was a $3 million impact from changes in FX rates. The organic revenue increase was primarily driven by higher US listings revenues due to the expansion in our listed issuer base together with an increase in IR advisory services and ESG product offerings. Corporate platforms ARR was $509 million and increased 16% compared to the prior year period. The corporate platform segment operating margin of 42% increased three percentage points compared to the prior year period, and it was driven by both the continued increase in the listed issuer base and strong activity on the NASDAQ private market. Market services net revenues increased $36 million, or 13%. The organic revenue increase was $28 million, or 10%, and there was an $8 million impact from changes in FX rates. The organic increase during the period primarily reflects increases in equity derivatives and trade management services revenues. The segment operating margin of 65% increased one percentage point from the prior year period, reflecting strong operating leverage on trading revenues. Turning to pages 9 and 10 to review both expenses and 2021 guidance. Non-GAAP operating expenses increased $65 million to $392 million. The increase reflects a 24 million or 7% organic increase, a $26 million increase from the impact of acquisitions, as well as a $15 million increase from the impact of changes in FX rates due to a weaker US dollar. The organic expense increase has two main drivers. First, higher variable performance-linked compensation expense reflecting our outstanding revenue growth. And second, increased costs related to what has been a very active capital markets backdrop, including expenses related to increased trading capacity and marketing commitments supporting our listing clients. We are narrowing our 2021 non-GAAP operating expense guidance to a range of $1.59 billion to $1.62 billion to reflect that our strong and broad-based organic revenue growth in the first half of 2021 has impacted variable expenses like performance-based compensation and marketing commitments. As we look forward to the remainder of the year, if performance continues to be strong in relation to our medium-term growth objectives, we would, as we said last quarter, expect to come in near the high end of this updated expense guidance range. Moving to operating profit and margins, non-GAAP operating income increased $82 million in the second quarter of 2021. Our non-GAAP operating margin of 54% increased one percentage point compared to the prior year period. Net interest expense was $33 million in the second quarter of 2021, an increase of $8 million compared to the prior year period due to incremental interest expense related to the financing of the Verifint acquisition. The non-GAAP effective tax rate was 25% for the second quarter of 2021. For 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 second quarter of 2021 was $316 million, or $1.90 per diluted share. compared to $256 million or $1.54 per diluted share in the prior year period. Turning to slide 11, debt decreased by $189 million versus the first quarter of 2021, primarily due to a net reduction of $214 million of commercial paper, partially offset by $24 million increase in Euro bonds book values caused by a stronger Euro. Our total debt to trailing 12 months EBITDA ratio ended the period at 3.2 times, a decrease from 3.4 times in the first quarter of 2021. During the second quarter of 2021, the company paid common stock dividends in the aggregate of $88 million and repurchased common stock in the amount of $248 million. As of June 30th, 2021, there was 1.46 billion remaining under the share repurchase authorization. As previously communicated, upon the consummation of the sale of our U.S. fixed income business, we issued approximately 6.2 million shares to a third party. We intend to use the proceeds from the sale as well as available tax benefits, working and clearing capital of this business and other sources to repurchase shares in order to offset the EPS dilution from the sale. This week we plan to execute an accelerated share repurchase program for approximately $470 million. Let me talk for a moment about share count expectations. Our average diluted shares outstanding for the second quarter were 166 million. Due to timing, this average reflected only a minimal impact of the 6.2 million NFI-related share issuance. At the end of the second quarter, however, diluted shares outstanding were approximately 172 million. With our plan to execute the accelerated share repurchase program in the third quarter of 2021, at the current share price, we would retire approximately 2 million shares in the third quarter and roughly a half a million additional shares in the fourth quarter. We plan to execute additional repurchases to offset the remaining NFI dilution in 2022 and 2023. We continue to expect EPS dilution from the sale of NFI to be about 2% in the first 12 months following the June 25th close, but to diminish to immaterial levels after that. I'll wrap up by saying that these capital reallocation actions, both in terms of the sale of NFI and the related capital return program, support NASDAQ's acceleration of our strategy and allow the company to further concentrate our resources on strategic opportunities. Thank you for your time, and I'll turn it back over to the operator for Q&A.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. Please limit yourself to one question and, if needed, one related follow-up. Our first question comes from Rich Rapetto with Piper Sandler. Your line is open.

Good morning, Adina and Anne. First, congrats on the sale or spin-out of the private markets. I guess my question is, Can you give us a better feel for the minority interest and what the valuation was? And then a little bit on the background of how it developed, because you do have some significant players. Some others aren't in it. And I'm backing into, I guess, $20 million in revenue. Is that right for sort of what it would contribute fully last year?

Great. Thanks, Rich. So, first of all, we are really, really excited about the partnership we've created. And we basically, we contributed the NASDAQ private market asset. The other firms contributed investment dollars so that we can continue to build out the platform and grow and expand the footprint of NASDAQ private market going forward. We have a large minority stake, so we are the largest shareholder, and we will retain that In terms of the revenue for the last 12 months, you did the math right. So it's $20 million on an LTM basis. But I would say that we do think that this is an opportunity for us to really accelerate our progress in the private company share liquidity programs. And we're seeing a lot of interesting and additional programs or interest from institutional investors, from other shareholders, to really use the NASDAQ private market for price discovery, maybe continuous trading programs and other things like that. And we think that with the partners that we have between the West Coast with Silicon Valley Bank and their relationships with the venture community and early stage private companies, the institutional connections that Citi and Morgan Stanley and Goldman have, and then us as a marketplace operator and our expertise and our relationships with later stage private companies, It's kind of like this great coming together of talent and network and distribution capabilities that we think that we can really, really accelerate the progress and create a lot of value for our shareholders, even with a large minority interest as opposed to 100% interest. So that is the thesis, and we're really excited to get going with them. And it should actually close pretty quickly. We've gotten a lot of approval, so we should be able to get this going very quickly.

Okay, and then the related follow-up would be on NASDAQ fixed income. If I'm looking at slide 12, that means it was about $10 million in revenue or so. Can you talk about the profitability of NASDAQ fixed income?

So it's $10 million for market services, and then there's also revenue coming out of the investment intelligence business, which is the data part of Eventify. So it's those two together. that make up the revenues that are coming out. In terms of profitability, it was profitable. I mean, it is profitable, but not to the same degree as the rest of our business.

Understood. And congrats on moving the strategic pivot forward here.

Yeah, great. Thank you.

Thank you. Our next question comes from Alex Cram with UBS. Your line is open.

Yeah, hey, good morning, everyone. Hey, Alex, good morning. Yes, hey, maybe starting with market tech, you know, there were some logistical challenges, obviously, with COVID, so maybe you can give us an update how things are looking. There are very strong order intake numbers, so maybe you can talk about that specifically. Where is that coming from? Is it very long-term contracts, or how much of that $100 million-plus number should hit the income statement here pretty soon?

Thanks. Sure. So first of all, yeah, we are definitely seeing – progress in terms of growth and demand from clients in market tech. So if we talk specifically about the market infrastructure technology side of market tech, We are definitely finding new clients to serve, which is exciting. We are continuing to grow the number of crypto markets that we're providing technology to, digital asset markets we're providing technology to, but also our core clients are, after a year of a lot of volatility and a lot of focus just on the here and now, they're definitely now focused again on what does it mean for their infrastructure for the future. And our next-gen system is kind of front and center in a lot of clients' minds. So the order intake is reflecting, Alex, both some re-upping from existing clients as well as some new clients that have come in. And so it's a really healthy mix. And the conversations that we're seeing around the world are just much more longer-term driven. and more focused on the future. So we're excited to see that progressing. Now, the fact of the matter is, though, we're still not traveling, right? So we're still having to, you know, we've adjusted, I think, pretty well to a remote environment in terms of delivering for clients, and that was a big adjustment, and obviously we had challenges associated with that. But we're still delivering in a remote environment, and we're still selling in a remote environment. And so we still think that it will be, you know, kind of improvements over time, but not something where you're going to see kind of just this huge surge in one period of time. I think that we expect it to be, you know, steady improvement in demand and our ability to deliver over time. But as I, you know, on the anti-fin crime side, I should mention, you know, on the anti-financial crime side, we are, you know, we're doing really well in selling our market surveillance SaaS solution to new clients still. That was something we launched beginning of 2020 and it's had a really nice demand curve there. Um, in terms of our trade surveillance solution, we continue to find ways to expand our client relationships. And then of course, on, on Verifin, we mentioned the fact that they had 36 new customers come in and, and that business is going really well.

Okay, great. And then just very quick follow-up, um, the equity revenue capture continues to surprise me. I mean, this quarter, again, I don't, I don't know if it's been as high in many years. So can you just talk about the puts and takes and expectations? I know it's very dynamic, but, uh, It would be helpful to understand the trends and what's driving the strength there. Thank you.

Yeah, sure. I think the first thing to mention is, you know, events like the Russell and the Triple Witch in June, you know, those are two very large trading events that you contributed to capture. I think that – but then in general, we are – you know, basically calibrating capture and share, we, you know, we might do some programs to try to make sure that we do, you know, kind of draw in more order flow into the platforms going forward. So that will ebb and flow a bit. But you're right. It's at a level that... You know, we're excited that we're able to provide such a great platform or the go-to platform for clients and kind of the mix of the types of trading that are happening on the platform resulting in that type of capture. But as I said, you know, we're going to do what we do always in terms of balancing kind of share and capture to make sure that we're doing the best thing for our clients but also managing the business really successfully. So that might ebb and flow a bit in the coming quarters.

Great. Thank you very much.

Thank you. Our next question comes from Dan Fannin with Jefferies. Your line is open.

Thanks. Good morning. My question is on corporate platforms. You know, you highlight ESG for some time as a huge growth area or a large growth opportunity. I look at the IR and ESG kind of revenue contribution. They've been flat to down the last couple of quarters. So could you let us know or kind of lay out the growth profile from here on out? We should think about kind of the growth opportunity going forward?

Sure. Well, actually, our IR and ESG services revenues grew 8% in the quarter and year-to-date are up 7%. So I would actually say that we're – I'm not quite – maybe you could let us know what specifically you're looking at and saying it's flat. But generally, we actually are seeing, you know, as you know, that business has in past years has been a relatively low grower and But what we've been finding is that more demand for IR advisory services, more demand for governance advisory services, and more demand for the tools both in IR and ESG to just manage their ESG reporting capabilities as well as to understand changes in investors. So we actually have seen it as being kind of a healthier environment for that business, but maybe there's something specific you're looking at.

I'm just looking at slide seven where you've had 56 million in revenues this quarter, 57 last, and 56 in the fourth quarter.

Yeah, so I think that we tend to look at this kind of year over year, but one of the things to note is that it's a relatively cyclical business, so there are certain things that might come in. Let's say the end of the year for sure tends to be a high quarter, but generally on a year over year basis, we look at it as the 52 growing to 56.

Okay, thank you.

Thank you. Our next question comes from Alex Bolstein with Goldman Sachs. Your line is open.

Good morning. Thanks for taking the question. I was hoping to get your thoughts on some of the market structure developments. Obviously, Chairman Gensler laid out a fairly ambitious agenda recently with respect to specifically both payment for the flow and the exchange rebates. Obviously, early days still, but curious to get your take on how this could be a potential opportunity maybe in some ways for NASDAQ or some things that could be more problematic.

Sure. Well, I think the first thing is I believe that we seem to be relatively aligned, at least with the overarching agenda of the SEC right now in terms of thinking about how do you maximize competition, how do you maximize price transparency, and how do you maximize market access, right? And make it sure it's fair competition. across both institutional investors and individual investors. And so if you kind of take that as kind of the principles that they're operating under and certainly the principles we operate under, I think that as they look at all the various components of market structure, our view is that while our solutions may be slightly different or our ideas may be slightly different, there's general alignment. In terms of that, that means things like kick-size regimes, also different incentive programs that might exist are going to be examined. I also would say, as we kind of all know, the markets are working and operating relatively well. So to the extent that we think that there can be constant improvement, that's absolutely the case. But our view is it's better to try incremental iterative improvements than to try something big bang because the law of unintended consequences are so high. If you make changes to incentive programs, then you have to understand what all the consequences might be from that in terms of retail investors getting access to free trading and making sure at the same time that the quotes reflect the actual supply and demand of the market. So a lot of pushes and pulls. So, Alex, I think that it is still early days. We are certainly in active dialogue with the SEC staff. As they come out with their papers, we'll be there to comment and be a part of that debate. But our view is that right now at least, you know, there's a general alignment of principles, which we think is – we obviously have some optimism around.

Great. And a quick follow-up for Ann just around the expense guidance. I just want to make sure that the guide that you guys updated today, it's performer for both the NFI sale and the JV transaction later in the year?

Yes, it is.

Great. Thanks very much.

Thank you. Thank you. Our next question comes from Michael Cypress with Morgan Stanley. Your line is open.

Hey, good morning. Thanks for taking the question. Just wanted to ask about Verifin. I was hoping you might be able to elaborate a bit on how the revenue growth compared in that part of the business versus the underlying new customer growth. I heard you mention about 36 new customers coming through on the Verifin side. Just hope you can elaborate a bit on the growth rate there of new customers versus revenue. And if also you could just talk a little bit about the sales strategy there. on the Verifin part of the business, how you see that evolving, what changes have you made, and how is that getting integrated within the broader NASDAQ? Sure.

Yeah, I mean, I think that when it comes to the growth within Verifin, there's a really nice balance between new logos or new clients and then re-upping and expanding relationships with existing clients. So Verifin is an interesting model. They do weekly release cycles, and they enter into these multi-year agreements with clients But they're literally enhancing the system every single week and bringing a lot of new capabilities in under the existing contract. But when they renew the contract, they kind of point to all these improvements and all the value they've created over the prior several years. And so when they do renew, they tend to renew at a higher rate and often also a broader user base. So when we look at the growth of revenue, they look at new bookings and then they look at existing client renewals because those also drive revenue growth. and it's actually been quite balanced. It always has been, and it continues to be quite balanced in both areas. In terms of the sales strategy, they have an incredible kind of sales approach and sales discipline. They are incredibly metrics-driven and KPI-driven. It's amazing to see kind of how they're very disciplined in the way that they do it. They do most of their sales Remotely, they always have. They always would like to be able to have conferences and other ways to meet new clients, but they have the ability to do sales successfully in a remote environment. And I think, luckily, that muscle is quite mature, so they haven't had to make a ton of change through the pandemic. And in terms of our impact on that, where we've been focused is opening doors to larger clients or to maybe they're trying to nurture a new relationship, but they're already a listed customer on NASDAQ. so therefore we can leverage our relationship manager to open more doors and maybe accelerate the sale process. Or they're very large banking relationships, and so we can kind of get them in front of higher-level executives to pitch their services. But their platform itself is, is a superior platform. So we feel very confident in bringing them to customers and saying we know that they can do better than whatever the client has existing in their system. And that's the one area we've been collaborating on the most. We have a regular meeting where we go through the pipeline. We examine where we have relationships, where we can stretch them to go to larger clients. And then strategically, how are we going to move them up the value chain and then move them over into Europe?

Great, thank you.

Thank you, Michael.

Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.

Good morning, and thank you for taking my questions. So you mentioned that e-Vasmin and Zoloft, previously you mentioned that these two segments were impacted by COVID. Given the rollout of vaccine and the strong equities market, Do you see an acceleration of the demand in this workforce solution and analytics compared to maybe last quarter and last year? Thank you.

Sure. Yeah, we actually have seen a really nice recovery of demand, Owen. So the reason why investment and Sylvus were impacted by COVID was, first of all, we bought Sylvus right at the beginning of the pandemic, so the integration took longer than we wanted it to just because we couldn't get together, and getting to know people on Zoom is different than getting to know people in a room. So... But then also kind of thinking about the integrated platform and kind of how do we demonstrate an integrated solution to our clients? That took a little bit longer, too, because, again, the integration took a little longer. But now in the fourth quarter of 2020 and into 2021, you're starting to see that demand pick up. in terms of asset owners really understanding the intersection between making an asset allocation decision and then managing their portfolio once they make that decision. And we have solutions that provide and kind of bridge that. So I think that we've definitely seen a nice acceleration of demand. And you're seeing that in the growth numbers in first quarter and second quarter. And we definitely are, you know, I think that we feel like also investment managers and asset owners are definitely more willing to put money to work to advance their own platforms. And I think that also took a little while for them to realize that they had, you know, it's a very active capital markets backdrop. So bringing in these solutions can make their lives a lot more efficient. And I think that that demand has also come back.

Got it. That's very helpful. Just a quick follow-up, a quick one on NPM, the NASDAQ private market. Do you expect to add more strategic partners, add more banks to the platform, and also longer term? Can you expand this platform to maybe international companies? What are the regulations there? Thank you.

Sure. I mean, over time, we'll examine the idea of bringing in additional banks. I think that we are extremely excited about the group that we have and what they can do and what they can bring, just kind of really immediate value they can provide. But over time, certainly we'll look at whether or not there's a value creative way to do that. In terms of international, there are regulations associated with that, but it is an area that we would say that over time we should be able to globalize the platform. We do bring some foreign issuers into the platform, but it's then they have to kind of go through, it's a FINRA broker-dealer, so they have to go through and make sure that all the institutional investors are accredited in a way and are registered appropriately. So it's It definitely isn't completely open as a global platform at this point, but it's certainly something we have on the agenda.

That's very helpful. Thank you very much.

Thank you. Our next question comes from Brian Battle with Deutsche Bank. Your line is open.

Great. Thanks very much for taking my questions. Just first one on Verifin, Idina, if you can talk a little bit about the opportunities you see in decentralized finance for demand for Verifin services, especially in AML and other compliance functions. Are you seeing an opportunity for new business there incremental to when you initially did the deal? And is that coming from or are you seeing that from larger institutions that, you know, obviously you've been laying out, you know, synergy expectations for?

Yeah, it's a great question. And, yes, I think that the answer is that as we've seen a lot of change both in terms of the growth of fintechs and the emergence of DeFi, we do see that those two parts of the sector is being really interesting growth opportunities for Verifin. Verifin has been focused on banks, but the fact is some fintechs have been leveraging banks in order to manage their fraud and email detection programs. And so what Verifin will do is they'll put the platform into the bank, and then the bank will then kind of become a subcontractor to the fintech. Well, over time, I think that Verifin understands that, really, they could become, obviously, a direct provider to those fintechs. And that would be the case, of course, with the DeFi providers as well. And I think that they have a really, truly a superior, particularly on fraud detection and AML detection as well. There's a network effect that they have because they have 2,000 banks in their network that allow for them to, frankly, just be better at eliminating false positives and focusing in on real potential fraud issues. So we do think that we have a chance to expand there, and they're very excited about that as a near-term opportunity. And it may be that we choose to prioritize that a little bit more in the near term and take a longer-term view towards some of the global expansion, but right now we're frankly examining all of those elements and making sure we're prioritizing their time and attention.

Great. Thank you. And then maybe just to follow up on the market structure, some have mentioned sub-penny pricing would be one solution to bring more volume onto listed markets? Maybe just your thoughts on whether you think that would be one good approach to at least solve for that problem.

Yeah, I mean, it certainly is an issue of not having a level playing field between us and dark pools and internalizers. So we certainly think it gives us an opportunity to be able to draw in more flow I think, though, that when you look at the internalization, there are multiple factors that drive a retail broker to a specific internalizer, and obviously paying for a flow is part of that. The ability for internalizers to make good on broken trades is another area that they focus on. There are a range of services that internalizers provide, but if we could make it so that – I mean, the fact is they really just can't put a lot of orders into our platform because we don't have the ability – to offer sub-penny pricing, and that is where they're getting executed. So that will break down a barrier. But, you know, we have to look holistically at the range of things that we do and what we can do to attract more retail flow in. One point is in Europe, actually, most retail orders actually come to the Nasdaq Nordic platform. We have great relationships, direct relationships with the retail brokers, and they execute their trades. They place their orders in our book. They're visible, and so they get more order interaction, and they have a great execution experience. So we do think that if you level the playing field, we can compete for that order flow.

That's great, Kelly. Thank you.

Thank you. Our next question comes from Carl Voigt with KBW. Your line is open.

Hi. So just a few questions on the ETP, the sponsor switches. First, just a clarification question regarding the $3 million revenue impact per quarter. Is that solely the impact moving forward, or was some of that impact already felt in the 2Q index revenues? And then as a follow-up to that, historically, can you remind us if you've seen many sponsor switches historically, or is this more of a one-off event? And then lastly, will these Vanguard and BlockRock decisions at all impact broader pricing decisions or pricing strategy for the index business moving forward?

I'll have Annie answer the first question. Go ahead.

Sure. So on the $3 million that I referenced at the start, we haven't seen any of that impact yet. The $17 billion in assets moved at the end of the second quarter. And so we'd expect to see some of the $3 million impact. You know, you could think about it as maybe roughly half in the third quarter and then the full run rate in the fourth quarter.

With regard to sponsor switches in the past, we do not, you know, it's not something that we've seen. It's really, this is an unusual event, and it's something that we see as kind of a one-off type of situation. We've had a lot of dialogue with all of the remaining clients that we have, and frankly, BlackRock and Vanguard remain clients, just smaller ones. And so we feel very good about all of the partnerships we have with our clients. I think that, obviously, any time a sponsor switches, you do self-reflection, and you want to make sure that we're giving them absolutely the best service possible. And so we will continue to make improvements across our business just to make sure that we're the ones they switch to. And we have certainly been the index provider that other sponsors have switched to in the past. We feel very good about our platform, but we can always improve. But I would say this is not something that's frequent. The other thing is some of the sponsors have also made other switches. So we're not the only ones that they've made the decision around. They've made decisions around other providers as well. In terms of pricing, we don't see this as a reason to – examine pricing. It really has to do with we feel very good about the way that we price our products. We do that based on the complexity of an index, the uniqueness of the index, the types of investors we're trying to attract into the index, and what's the size and scope of the opportunity. So we will continue to do our pricing the way we always have.

Very helpful. Thank you.

Thank you. Our next question comes from Patrick O'Shaughnessy with Raymond James. Your line is open.

Hey, good morning. I'm curious if you can talk about some of the previous challenges that may have limited NASDAQ private markets traction in the marketplace. And I guess along with that, how do you see the long-term addressable market? How would you size that in the opportunity that you're trying to go after with this joint venture?

Great. So challenges in the past have been There's a lot of them. So one is just the inefficiency that exists in the system, as well as kind of the hesitancy in the past for private companies to offer liquidity options. I think that's been, frankly, the biggest impediment in the past. Private companies, obviously, when they bring in early-stage investors, they want them to be in there for a long time. When they issue equity to their employees, they want their employees to be locked up for a long time. However... Today, it's a very, very vibrant environment, and private companies are staying private longer. And over time, they've realized that unlocking liquidity actually can be value-creative because, number one, their employees, over time, they want to buy houses and send their kids to school and be able to use their equity in ways that help manage their lives. And so offering... A fair way and a high integrity way to offer that liquidity is really important. And to attract talent these days, to have some sort of liquidity program as part of talent acquisition for a private company is becoming more interesting and something that you're seeing. The second is that obviously getting early stage investors some returns and then bringing in later stage investors who can carry firms over time into the public markets is highly, highly interesting. And so... There's just been this really steady increase in corporate interest in liquidity, and we've seen an acceleration of that in the last couple of years. Private companies are really balancing, do we go public, do we stay private? If we stay private, how do we make sure that we have a nice liquidity capability within the company? And then, of course, with direct listings, there's what we call continuous trading programs that are being developed in advance of those companies tapping the public market. So, I think all of those things have accelerated the interest, and now it's a matter of us really bringing together the institutional community, the venture community, and the private company community to – and obviously our technology capabilities and our market know-how to say, okay, how do we catalyze this into a really robust and efficient liquidity marketplace? So we see this as being just a huge opportunity. In terms of the total market opportunity – It's hard to measure something that doesn't exist, but when we look at it and say what do we think the liquidity could be and what kind of revenue opportunity could there be, we actually size it anywhere between kind of $500 million to $1.5 billion. So it's a big opportunity that we're going after over the next five to ten years.

Got it. Very helpful. Thank you. And then my quick related follow-up. Does the current expense guidance reflect pushing the NASDAQ private market expenses into the JV?

Yes, it does.

Great. Thank you.

Thank you. And we have a question from Simon Clinch with Atlantic Equities. Your line is open.

Hi. Thanks for taking my question. I wanted to follow up on the Verifin opportunity. It's not gone unnoticed to me and others that the growth this quarter was pretty astonishing. I think it was around 37% on an organic basis. And you've talked about in the past your ability to help accelerate the revenue growth there. So I'm kind of interested in how you think about the expense side and the investment requirements should Verifin continue to see this level of heightened growth over the next few years. and how you've accounted for that in your longer-term model. Just wondering if there's any considerations we need to think about on the plus or minus side of that.

So I would say that the growth has been – it continues to be, I really should say, quite robust. And so your math seems pretty accurate. I think that in terms of the way that we are approaching this business is we see a very long-term – high growth opportunity, right? So the overall anti-financial crime space is growing at like 17% a year. It's a huge, huge opportunity, $6 to $8 billion TAM or SAM, frankly. The TAM is much bigger, but the SAM is in that range. And so if we invest in the platform, we are actively investing and we will continue actively to invest in the platform to make sure we can continue to the kind of growth that they're exhibiting today. And so we've talked about this, you know, when we've actually been pretty clear as to the fact that we're not going to be maximizing margin right now. We're going to be maximizing growth. The EBITDA, when we talked about it upon acquisitions, is in the range of 25%. And we expect that we will try to kind of maintain that kind of margin while we're growing as fast as we can. But over time, obviously, as the space matures, there certainly are ways that we can scale it. But right now, we're going to maintain that growth mode and still be able to deliver a really nice bottom line in a high-growth business to our shareholders.

Okay, that's really useful. And just as a follow-up, in terms of your capacity for deploying your capital for other inorganic opportunities, could you talk about sort of where you feel you've got the most capacity both financially and also from a personnel perspective to digest and sort of execute on deals?

Well, in terms of... Yeah. So I think that the way that we look at it from a discipline perspective, a capital discipline perspective, as we said, you know, for we are an investment grade company and we generally seek to maintain our investment grade status. And at the same time, we want to make sure that we have the opportunity to capture new growth and expansion opportunities with some areas of particular focus. One is in the anti-financial crime space. The second is in the investment syllabus kind of space in terms of asset owner, asset management, workflow solutions, particularly focused on the private markets there. And then the third is in ESG. But we also do look at things that are in corporate services, like PuroEarth is a marketplace that really serves corporates for carbon removals. We continue to find ways that we want to serve our corporate clients in our marketplace And so we will always, you know, we look holistically at acquisition opportunities, but we have these three focus areas that I mentioned. But I also would say this, you know, we are incredibly focused on our organic growth, and I think we're delivering really strong growth, and we want to continue to deliver really strong growth for our clients and our shareholders through our organic means. But when we look at acquisitions, we have those focus areas that I mentioned.

Fantastic. Thanks so much.

Sure. Okay. Well, I think that we're going to close it out. So thank you very much for your time today. And we're really pleased to see that our business is delivering strong revenue growth for the quarter and for the year. 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. And I look forward to updating you all on our progress in the months to come. So thank you and have a great day.

This concludes today's conference call. Thank you for participating.