Nasdaq, Inc.

Good day, and thank you for standing by. Welcome to the NASDAQ second quarter 2022 results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star one 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, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss NASDAQ's second quarter 2022 financial results. On the line are Idina Friedman, our CEO, Anne Dennison, our CFO, John Zecca, our Chief Legal, Risk, and Regulatory Officer, and other members of the management team. After prepared remarks, we'll open up the line to Q&A. The press release and presentation are on our website. We intend to use the website as a means of disclosing material, nonpublic information, and complying with disclosure obligations under SEC Regulation FD. I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these projections. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and periodic reports filed with the SEC. I will now turn the call over to Adina.

Thank you, Ed, and good morning, everyone, and thank you for joining us. My remarks today will focus on NASDAQ's second quarter 2022 financial and business performance, as well as the progress we've made to drive forward our strategic priorities for the year. I'd like to begin by acknowledging that we continue to find ourselves amid an uncertain macroeconomic and geopolitical environment. Yet while markets, investors, and corporate clients all experienced increased levels of volatility during the second quarter, NASDAQ's strategic vision and our ability to execute on it remains clear. The strength and quality of our businesses puts us in an excellent position to navigate these dynamics. Our record net revenue and non-GAAP EPS results demonstrate our ability to capture new opportunities in different operating environments, even as we continue to strengthen our positioning for longer-term growth through focused investments. I'm proud of our team's focus on delivering consistent results to our clients against this dynamic backdrop. Let's turn to our results. I'm very pleased to report NASDAQ's strong financial performance for the second quarter of 2022. We achieved a record $893 million in net revenues, a 6% increase compared to the prior year period, and 9% on an organic basis, excluding the impacts and changes in FX rates and acquisitions and divestitures. Our total annualized recurring revenue, or ARR, increased 9% to $1.97 billion. Annualized SAS revenues totaled $679 million in the second quarter of 2022, growing at an even faster rate of 12%, which reflects strong demand for our anti-financial crime solutions and investment analytics offerings. SAS revenue now comprises 35% of total company ARR, a new high. The consistent growth we're seeing in our recurring revenue segments provides a powerful starting point for our overall performance, but we also delivered strong results across with our index licensing and trading revenues. Turning next to specific highlights from our business segments, our solution segments delivered combined total revenue of $582 million during the second quarter, a 10% increase from the prior year period, or 12% excluding the impact of FX. The growth was driven from activity across several of our businesses, including our index and analytics offerings, the expansion of our listed issuer base, our anti-financial crime offerings, as well as strong demand for our IR and ESG services. In our investment intelligence segment, we delivered $283 million in total revenue in the second quarter, an 8% overall increase from the prior year period, and 10% excluding the impact of FX, with growth contributions from across the businesses during the quarter. Revenue in our market data business increased by 1% from the prior year period and 3% excluding the impact of FX, primarily due to an increase in proprietary data revenues from international clients. In our index business, we saw revenue growth of $17 million, or 16%, versus the prior year period, driven by positive net flows of $71 billion over the last 12 months, including $25 billion of inflows during the especially challenging beta environment experienced in the first half of 2022. We also saw especially strong results from licensed futures activities, which, together with inflows, more than offset the negative impact of market data. And in our analytics business, revenues grew 8% from the prior year period and 10%, excluding the impact of FX. Our flagship investment analytics offerings saw continued strong user adoption, both across our asset owners and asset managers, and drove annualized SaaS revenues for the investment intelligence segment to increase 12% versus the prior year period to $215 million. Turning next to our market technology segment, we delivered $131 million in total revenues in the second quarter, a 12% increase in the prior year period. This is primarily driven by continued growth in our broader anti-financial crime technology solutions business. Our anti-financial crime technology business had a strong second quarter with a 29% increase in revenues versus the prior year period. Growth was driven by sales in our fraud and anti-money laundering, or what we call FRAML solutions, as well as the impact of the Verifin acquisition deferred revenue adjustment recorded in the prior year period. We welcomed 37 new clients during the quarter. We continue to gain momentum with our efforts to expand Verifin's presence with larger Tier 1 and Tier 2 banks through our proof-of-concept trials. These are active evaluations within a prospective client's compliance infrastructures. While this diligence process results in a relatively long technology purchasing cycle, it is an important step to drive our success in extending our solutions to this area of the market. Moving next to our market infrastructure technology business, we generated $56 million in net revenues during the second quarter. Importantly, we made continued progress on the deliverables within a group of particularly large client projects that we have discussed in recent quarters, reflecting our increased ability to work with clients on site. Specifically, we completed phase one deliveries for all four of our largest implementations by the end of the quarter. While some of the projects have follow-on phases, we are pleased to have met these important milestones so far this year. Market infrastructure technology also had some exciting new relationships that were announced during the period. In May, XP, a provider of financial products and services in Brazil, announced the development of their new trading platform for digital assets, which is leveraging NASDAQ's next-gen technology. deployed as a SaaS solution in the cloud. In June, Climate Impact X, a Singapore-based marketplace for carbon credits, announced their decision to leverage NASDAQ's SaaS-based marketplace services platform to power their new spot exchange for carbon credits, which is slated for launch in early 2023. As I noted earlier, we are actively engaging in person with our clients again, and the team recently welcomed over 100 officials from 50 global marketplaces to our annual Technology of the Future industry conference. The overall sentiment from clients there was incredibly encouraging, particularly as the market infrastructure operators see the advantages that our technology, including our cloud deployed solutions, can bring to their respective customers as they contemplate shifts in their operating models and look for new ways to differentiate their offerings. We remain confident in our ability to improve our organic growth through the remainder of 2022 and into 2023. Moving to our foundational marketplace businesses, our market services segments delivered net revenues of $310 million during the second quarter. We maximized opportunities presented by robust levels of activity through strong market share and consistent pricing strategies. The share volume traded on NASDAQ exchanges grew by 22% compared to the prior year quarter, and trade management services revenues hit a new quarterly high of $87 million, up 7% versus the prior year, reflecting an increase in demand for connectivity and infrastructure services. At the end of June, NASDAQ's closing cross set a record for the number of shares traded during the 2022 Russell U.S. Index's reconstitution. 3.3 billion shares, representing nearly $64 billion, were executed in two seconds across NASDAQ-listed securities, a 40% increase in shares crossed from last year's event. I'm incredibly proud of our market services team on achieving yet this important milestone. The new closing cross-record is a testament to the investments we've made in our technology and a result of the trust the team has worked diligently to build with all investors, including through some of the most volatile market periods on record. NASDAQ's Nordic equities markets also saw strong volumes as well. The value of shares traded on NASDAQ's Nordic and Baltic markets for the first half of 2022 was the second highest since 2008. Finally, our corporate platform segment delivered revenue of $168 million in the second quarter, a 13% increase from the prior year period, driven primarily by our expanded listed issuer bases across both our U.S. and Nordic listing franchises, as well as growth and demand for our IR and ESG services. Revenues in our IR and ESG services business increased 9%, underscoring the strong demand for our consultative and technology-based solutions during the period. The number of corporate clients using NASDAQ's IR and ESG services solutions increased 6% from the prior year period, while we've also been expanding relationships of existing clients. In addition, during the second quarter, we acquired METRIO, a provider of corporate sustainability, sustainability data, analytics, and reporting services to corporates. METRIO's SaaS-based platform is complementary to our existing suite of ESG reporting solutions and will accelerate our ability to support corporate clients and their expanding sustainability management and reporting needs. Our growing expertise in all components of E, S, and G enable us to help our corporate clients confidently navigate the complexity of the modern capital markets, including managing their investor relationships more successfully. Turning to our listing services business, revenue increased 15% to $107 million as the number of NASDAQ-listed corporate issuers, excluding SPACs, increased 9% compared to the prior year period. NASDAQ continued its competitive leadership in attracting the majority of new U.S. listings for the 34th consecutive quarter, with 38 IPOs raising a combined $2.8 billion for an 88% win rate. In Europe, our Nordic, Baltic, and First North exchanges also welcomed 25 new listings. As I wrap up, I will summarize by saying that our second quarter results demonstrate how NASDAQ's client-centric culture and diversified business model provides us the stability to perform well in different market environments. As we enter the second half of 2022, We continue to focus on broadening opportunities within three major areas that align with our strategic evolution. First, under the pillar of liquidity, we are a leader in the modernization of marketplaces through our world class technology. This includes the progress we're making as we migrate our own markets to a cloud enabled state, including the planned migration of our MRX options market in the fourth quarter of this year, as well as our efforts to enable more of our market infrastructure technology clients to maximize cloud and other powerful technologies within their offerings. Second, under the pillar of transparency, we believe that we are incredibly well positioned to execute on our unique and substantial opportunity to be a leading ESG solutions provider. We are centered first on a foundation of serving the specific needs of corporate clients by providing advisory services, along with SaaS-based data aggregation and reporting capabilities to facilitate their ability to communicate their ESG and climate strategies and progress to the investment community. And third, under the pillar of integrity, we play an important role in seeking to make the entire financial system more safe and fair for savers and investors through our powerful and diverse anti-financial crime offerings, combined with our network of bank and brokerage clients. We remain relentlessly focused on advancing our strategy, and we believe that NASDAQ is well positioned to navigate the geopolitical and macroeconomic uncertainties that may persist as we move forward into the latter half of this year. And with that, I'll now turn the call over to Anne to review our financial details.

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. 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 financial section of our Investor Relations website at ir.nasdaq.com. I will start by reviewing second quarter 2022 performance, beginning on slide 10 of the presentation. The 6% increase in reported net revenue of $893 million is the net result of organic growth of 9%, including a 12% organic increase in the solution segment, and a 4% organic increase in market services, partially offset by the net impact of acquisitions and divestitures, and a 2% negative impact from changes in FX rates. Moving to operating profit and margins, non-GAAP operating income increased 6% while the non-GAAP operating margin of 54% was unchanged compared to the prior period. Non-GAAP net income attributable to NASDAQ was $342 million or $2.07 per diluted share compared to $316 million or $1.90 per diluted share in the prior year period. Turning to slide 11, as Adina mentioned earlier, ARR totaled $1.97 billion, an increase of 9% from the prior year period, while annualized SAS revenues totaled $679 million, an increase of 12%. I will now review quarterly segment results on slides 12 through 15. Starting with market technology, revenue increased $14 million, or 12%, with $10 million of the increase due to the impact of the deferred revenue write-down on Verifin in the prior year period. Organic growth for the market technology segment was 14% in the period and was driven by the anti-financial crime business, though market infrastructure technology saw a sequential improvement. ARR for market technology totaled $451 million, an increase of 5% compared to the prior year period. The market technology segment operating margin was 12% in the period. Investment intelligence revenue increased $22 million, or 8%, reflecting organic revenue growth of $25 million, or 10%. Organic revenue growth during the period reflects primarily strong growth in our index and analytics businesses, as well as positive contribution from market data. ARR totaled $586 million, an increase of 7% compared to the prior year period. Our index revenues were up 16% compared to the prior year, due principally to higher revenues derived from NASDAQ licensed derivative products, where we saw the benefit of both higher trading volumes in the products, as well as hitting the revenue threshold that triggers a step up in licensing economics, which happened about a month earlier in the year than we did in 2021. Based on the strength in the future side of index licensing during the period, The percentage of index revenues from AUM-based licensing was five percentage points lower than the approximate two-thirds level we typically speak about. The investment intelligence segment operating margin of 66% increased one percentage point from the prior year period. Corporate platforms revenues increased $19 million, or 13%, including 16% organic growth. The increase was primarily driven by higher U.S. listings revenues, as well as higher adoption across the breadth of investor relations and ESG advisory and reporting offerings. Our listed corporate issuer base increased 11% or 9% excluding SPACs. Corporate platforms ARR was $586 million and increased 15% compared to the prior year period. The corporate platform segment operating margin of 46% increased 4 percentage points compared to the prior year period, driven by a combination of recent growth in the listed issuer base and lower marketing expenses due to the subdued IPO environment. Market services net revenues increased $2 million, or 1%. The organic revenue increase was $11 million, or 4%, and there was $9 million negative impact from changes in FX rates. The organic increase reflects growth in trade management services, equity derivatives, and cash equity revenues. The segment operating margin of 65% was unchanged from the prior year period. Turning to page 16 to review both expenses and guidance. Non-GAAP operating expenses increased $21 million to $413 million. The increase reflects a $42 million organic increase, partially offset by a $17 million decrease from the impact of changes in FX rates and a $4 million decrease from the net impact of acquisitions and divestitures. The organic expense increase is primarily driven by higher compensation and benefits expense, reflecting two factors. First is our continued investment in new employees to drive growth, including a 9% increase in the team over the past 12 months. Second is annual merit increases, which is reflected in the quarterly expense run rate starting in the second quarter. The merit increase was higher than prior years due to inflationary pressures on compensation, and we built the higher increase into our guidance at the beginning of the year. We continue to make significant investments in this tightened labor market to attract and retain the top talent in our industry. We are narrowing our 2022 non-GAAP operating expense guidance to $1.71 billion dollars to $1.74 billion, tightening both the top and bottom of the prior range to account for expectations of continued investments, current FX rates, and the continued strong performance thus far in 2022. Turning to slide 17, debt decreased by $182 million versus 1Q22, primarily due to a repayment of the $499 million repayment of $499 million of the 4.25% senior unsecured notes due June 2024, partially offset by a net issuance of $421 million of commercial paper and a $105 million decrease in Eurobonds book values caused by a weaker Euro. Our total debt-to-trailing 12-month non-GAAP EBITDA ratio ended the period at 2.9 times, down from 3.1 times in the first quarter of 2022. Let me take a moment now to update you on the dividend stock repurchases and our board approval to split our stock. During the second quarter of 2022, the company repurchased $166 million in shares and paid common stock dividends in the aggregate of $98 million. We have successfully completed the share repurchase program to offset dilution related to the divestiture of our US fixed income business in June of 2021. As of June 30th, 2022, there was $293 million remaining under the Board Authorized Share Repurchase Program. I am also pleased to announce that our Board approved and declared a three-for-one stock split in the form of a stock dividend. As we had previously disclosed, the approval of an amendment to our charter to increase the number of authorized shares of common stock to permit us to affect the stock dividend required the approval of both the SEC and our shareholders. We received both approvals last month and filed the charter amendment yesterday. The record date for the stock dividend will be August 12th, with a distribution date of August 26th, and we expect trading to begin on a split adjusted basis on August 29th. Turning to page 18 of the presentation, I'd like to touch on some of the very material progress we've made executing on our sustainability strategy. First, in terms of external impact, as Adina mentioned, We announced and closed on the Metro acquisition in June, expanding our corporate serving ESG solution set, which will complement the more framework-based approach of our existing OneReport solution. Second, in terms of corporate sustainability, we published our annual sustainability and TCFD reports in June. On advancing our climate strategy, we have had our 2021 GHG emissions verified by a third party, and submitted our science-based targets to the Science-Based Targets Initiative for official validation. Lastly, in July, we received a two-level upgrade of our MSCI ESG rating to AA, recognizing the overall strength of our sustainability profile, including our leading governance standards in particular. We continue to see opportunities to advance our sustainability program across multiple aspects and look forward to updating you on our progress regularly. In closing, NASDAQ's second quarter results reflect a continuation of the company's ability to consistently perform well across a wide range of operating environments. We delivered record quarterly revenues, 12% organic revenue growth in the solution segments, and a 54% non-GAAP operating margin, resulting in what we see as strong momentum thus far in 2022 that we can build upon moving forward. 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 will need to press star 1 on your telephone. Please limit yourself to one question. If necessary, one related follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Rich Rapetto with Piper Sandler. Your line is open.

Yeah, good morning, Adina, and good morning, Anne. I guess first question is, Adina, on regulation. And I'm sure you had a chance to sort of digest Chair Gensler's comments about equity market structure that he made just over a month ago. So I guess, you know, I'd by and large look at it as a modest positive for exchanges, but bringing more volume back to lit venues, at least that's his intention anyway. But I'm just trying to see what you thought, because he was critical of exchange rebates. And was there anything that in particular stood out to you as noteworthy or that could be unintended consequences? Because he put out, I think, five or six different areas he wanted to focus on.

Yeah, sure. Rich, it's great to hear from you. I would say that with regard to the market structure discussions and proposals that we're seeing, first of all, we have a long way to go because we haven't yet actually seen formal proposals. But as we're listening to Chair Gensler and understanding where he's focused, I think that we're first and foremost pleased that he does really recognize the value of exchanges and competition in lit markets. He's really focused on strengthening the the national best bid and offer so that investors have a really solid understanding of true supply and demand of the market at all times. And he's really focused in on transparency in terms of transparency around best execution, disclosure of execution quality, and really focusing on how to bring more orders into the lit venues. And that's also focused on leveling the playing field from a competitive perspective between exchanges and dark pools. Overall, we see what he's trying to achieve, we think, is beneficial to investors. I think as we look at some of the incentive structures that he's focused on, obviously, we see great value in the rebate structure that we have on exchanges because it really incentivizes participants to put their quotes into a lit venue and make those quotes available as part of the national best bid and offer. And so the incentive structures are really literally designed to support lit quotes and lit orders. But I think that generally speaking, we still have a long way to go to understand what all the proposals will be. And then, of course, that then starts a long process around the comments and the industry engagement to determine what a final proposal would look like. So it's just the beginning, but we are encouraged by a lot of the areas that he's focused on.

Got it. And I don't know whether this qualifies as a necessary follow-up or not, but I guess just looking at your expense guidance, you narrowed it. a bit, but second half expenses would still be up 5% more than first half. So, Anne, any color and just, you know, your expense control this quarter was pretty, you know, standout. So, anything, why the 5% increase in the back half or more color behind?

Sure, Rich. So, you know, just back to sort of how we think about expenses in the context of revenue growth. We align, you know, our medium-term outlook for our solution segments revenues is 6% to 9%. And then against that, we think about a 3% to 6% expense growth. You know, coming into the year, we talked about and built into our guidance an additional, you know, 2% to reflect inflationary factors, as well as the cost of, you know, return to office and travel, et cetera. And so that's all built into the guidance. You know, there is some variability in the way that things come in throughout the year. And so, when you look at the, you know, second quarter, there's a couple of things, FX, you know, taking that down, and just variability in the timing of accruals. And so, as we look, you know, forward to the back half of the year, you know, we'd expect to come in, you know, depending on performance, you know, either at the midpoint or towards the top end of our expense guidance range. And just like in past years, we'd expect an increase in 3Q and that to be even higher in 4Q where we have some seasonality and expenses.

Yeah, and I think it's also just really important to note that in the last eight consecutive quarters, we've had double-digit growth in our solution segments. So we've kind of been exceeding the overall medium-term outlook that we've been providing in those segments, which then, of course, really makes us make sure that we have the right personnel and the right team to be able to support that growth, not only in terms of having all these new clients that we're now servicing from the growth that we've experienced, but also continue to make investments in the businesses to continue to drive the growth that we're hoping to achieve. So, you know, all of that is reflected in the guidance and in addition to, obviously, the performance we've shown so far.

Got it. Great, Kella. Thank you.

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

Yes, hey, good morning, everyone. Just going into the technology segment for a second, you ran through a lot of numbers there, and I think I may have missed some, but can you perhaps help us isolating the growth in the financial crime segment? That was a little bit softer than I thought, but maybe help us how Verifin did in particular on a standalone basis. and maybe what's going on in the legacy financial crime businesses. So any color around what's happening in those businesses and the numbers would be helpful. Thanks.

Sure. Yeah. Thanks, Alex. So we do provide the numbers now on the basis of that sub-segment, which is anti-fin crime. But if I give some color around on the two components. So there's two components to the anti-fin crime business today. One is the verifin business, which is the fraud and AML detection and investigation technology, and the other is our market surveillance and trade surveillance business. And both of them continue to have healthy growth and healthy engagement with clients. I think that as we look at that business, just like we do with Market Tech, we look at it over a 12-month period, not so much quarter by quarter. But it is also probably worth noting that in the second quarter of last year, Verifin had a truly outsized growth quarter. And so we're looking at that in the context of the current quarter in the context of that very outsized quarter last Q2. I think in general, as you mentioned, we are seeing continued strong growth across Verifin. We expect Verifin to continue throughout the year to perform along the lines of what we've been discussing with all of our investors since we bought Verifin. And we also are seeing really good engagement with the Tier 1 banks to try to deliver those services up market. I think the one thing about that is that the sales cycles with those tier one banks are long. And we know that. I mean, we obviously serve tier ones with our surveillance solutions. Just getting through the contracting process can take time. And that can create a little bit more variability quarter over quarter in terms of the growth rate there. But we see really strong performance around the SME banks, the smaller banks. the mid-sized banks, fintechs, and now really engaging more and more with the tier one banks. With regard to the trade surveillance and market surveillance business, trade surveillance continues to have really great engagement in terms of renewing contracts, expanding contracts. We now have a crypto trading module that we signed our first client around. And we also, you know, we're continuing to invest in that business. I think the market surveillance part of that business is a little bit a slower growth business, and it always has been, always will be. It's a smaller client set. And there we had, I would say, more of a kind of a flat quarter, a year-over-year quarter experience. So I think all of that adds up, Alex, to what you saw. And I think that we continue to see great momentum in the business.

Very good, Carla. Thank you for that. And then just a quick one. On the analytics business, not to be too nitpicky here, but The analytics business, I think the dollar revenues were flat literally over the last three quarters. I didn't think there was a lot of FX in there, but maybe I'm wrong about this. So just anything that's happening in this environment that I should be aware of, or maybe it's just FX.

Yeah, no, well, it's a combination of things. So I'm going to try to answer some of it. I'm going to hand it to Anne to make sure I give you a complete answer. But I think the first thing is investment continues to have good growth. They continue to find, you know, sign new clients and continue to grow and expand what they're doing. And that shows up incrementally every quarter, sequentially. Obviously, there are going to be some quarters that are stronger than others, just in terms of sales and expansions of our contracts. I think, though, that what you've got a couple of dynamics under the, you know, under the surface that one is just we have now some revenue associated with running programs around secondary transactions for private equity funds. And that showed up in the first quarter. And then I think there was something else in the fourth quarter. Was it FX?

Not FX. We have a couple of other small non-recurring items that tip over the rounding. So there's a little bit of noise behind it, but the core of the analytics business, the asset owner solutions are growing as expected.

Okay. We can flesh it out later. Thank you very much.

Yep.

Great.

Thanks, Alex. Our next question comes from Brian Bettle with Deutsche Bank.

Your line is open.

Great. Thanks. Thanks very much for taking my question. I'll bundle two questions into one if they're related. Solution segment organic growth, you know, you get this question a lot, I know, on the 6% to 9% growth, and obviously you've been tracking well ahead of that again this quarter as well. So just maybe in thinking, my guess is you're not changing that 6% to 9%, but maybe just talk about your optimism of continuing to exceed that level given some of the organic growth initiatives that you're talking about in market infrastructure and new opportunities for infrastructure for trading venues that are outside your norms. and um and then the tier one uh one two banks um cross sell uh realizing of course that cycle is longer but but you're starting in um you know right now obviously with a with a stronger organic growth rate so what i guess what would what would drive that rate uh solutions organic growth rate down into that 69 percent given given a lot of the opportunities you have and then The related follow-up is simply on index licensing. Just thinking about what that run rate might be into 3Q given you've reached the threshold. I guess when did you actually hit the threshold in the second quarter?

Sure. Okay. So, I think we're going to answer the second question first just because it's a probably shorter answer. Go ahead, Ann.

Sure, Brian. So, on the index question, we hit the threshold in late April. And so, you can think about it, you know, the threshold affecting, you know, two out of the three months of the quarter.

Yeah. And so on a run rate basis going forward, I mean, obviously it's subject to the volumes in the futures markets.

Yeah, all else held equal. They'd look a third better that that particular part of the revenues.

Yeah.

We'll look a third better going into the third quarter.

In terms of the bigger question that you asked regarding organic growth, I think that the first thing I would say is We really are pleased with the performance of the business, and we do have – we provide mission-critical software and analytics solutions to corporates, to other exchanges, to banks and brokers, and to investment management firms. So we do feel that our solutions really do add value, particularly with these periods of volatility. It's really important for corporates to really understand how their investors are changing and how to engage with investors, and obviously ESG is a long-term growth trend for that. With our investment analytics, asset allocation decisions are super important. Being able to manage your portfolio successfully as an asset owner is really important, and so those services are really sticky. Anti-fin crime, obviously, huge long-term trend in providing more advanced technology there. And then for market operators, you've got mission-critical technology that drives their business. So we feel very good about the stickiness of our products as we're delivering them to clients. We have been investing across the franchise in terms of really delivering and improved and more modern technology solutions as we go. And I think all of that is accruing to our benefit in terms of the growth rate. But we also – there are a couple things to think about in terms of their solution segments. I think that – As we think about going forward, we have really strong growth in our listings business because we still have 9% more listed companies today than we had a year ago. Based on the IPO environment we're seeing today, that could be something that slows into 2023, that growth rate in our listings business. But the flip side of that is we now have 9% more companies. And as they roll off their IPO packages, we'd like to make sure that we secure them as paying customers for our RIR and ESD services. So that kind of gives us the ability to continue to grow there. And beyond that, I think you're right on the market infrastructure technology side, Brian, that I do feel like we're really engaging really well with clients today. They are focused on the future of their markets. They are focused on how they bring some of this latest technology into their marketplaces. And the conversations are going from kind of theoretical to more concrete. And then on the back of that, we also, with everyone getting back together, we're able to identify new markets that want to form, and we've signed some really interesting and innovative markets in the quarter. So we do feel like that has a lot of momentum as we're going into the second half of this year and into 2023.

Okay. So it sounds like some headwinds potentially, but really you remain optimistic on this really strong growth, organic growth and solution segment.

I mean, we, I would say I'm an eternal optimist, but I do remain optimistic that we're really, we are delivering really great value to the clients. And so, you know, we'd like to continue that. I think we just know that there are always different dynamics we have to consider. And we're, so therefore, you know, we're maintaining our overall medium term outlook to the six to 9%. But obviously we have been performing better than that.

Yep, fair enough. Thank you so much.

Thanks.

Thank you. And as a reminder, please limit yourself to one question. Our next question will come from Alexander Blostein with Goldman Sachs.

Hey, good morning, everybody. Hello.

Hey, Alex.

Hey, good morning. Thanks for the question. So another one for you around the market structure regulation, just to follow up on Richard's question, I guess, around, you know, Chair Gensler's proposal. With respect to the, I guess, prior administration's proposal around market data, which was, albeit it feels like a bit more narrow relative to what the current SEC Commission is trying to achieve. How are you expecting this to go forward from here, given that it still feels like kind of in the background, but it's not clear what that fits in with the existing proposals?

Well, sure. Well, I think the first thing we should note is we were pleased with the court decision in understanding the critical value of the exchange from here, given that it still feels like kind of in the background, but it's not clear what that fits in with the existing proposals. Well, sure. Well, I think the first thing we should note is we were pleased with the court decision in understanding the critical value of the exchanges in terms of overseeing the SIP plans and overseeing the consolidated tape. So we are pleased with that. And I think structure over consolidated data, which is a core part of the last, as you said, the last SEC rule proposal, really means that the governance of that remains with exchanges. But we also recognize we want to meet the needs of our clients. So I think, Alex, that there are a lot of components to that rule that was approved by the SEC. And I think that is slowly going to start to move forward now that the governance is kind of settled. But it will take some time because there were like multiple elements of that in terms of odd lots, as well as the SIP data, as well as multiple consolidators. And then they're like, it's a phase in over multiple years. So I don't think we necessarily really fully understand the impact of that, but we also are engaging very much with the plans to figure out how we want to look at pricing. We have a pricing proposal with the SEC right now for them to consider. And we are also considering our role as a consolidator and the multiple consolidator model, because that could be an opportunity for us. And so I think that it's going to be a slow-moving train. It is going to start to move forward now, though, so that we, I think, because the governance structure is set, and we'll just have to see how that goes over the next several years.

Got it. Great.

Thanks very much. Sure.

We have a question from Daniel Fannin with Jefferies. Your line is open.

Thanks. Good morning. Wanted to follow up on market tech and, you know, the margin there has moved around a lot. Wanted to see as you ask about whether you think you've seen the lows there and we can kind of consistently see margins, you know, kind of move higher. And then within that context, thinking about the normal seasonality of the legacy market tech business in terms of the fourth quarter with change orders and other things based on some of the dialogue you've been talking about with clients, should we assume some normalization of that in 2022?

Sure. I think I would say that, Daniel, that we are starting to operate in a normal mode now in market tech, right? So we are engaging with clients in person. We're co-locating with clients in some cases. We are in a good place in terms of our delivery capabilities and we're servicing our clients well. And so I think that's all great. I think that in terms of the scalability of the business, we're signing most of our new clients are signing SaaS-based contracts, which I think is very helpful in terms of both in terms of the products they're buying, which are more standardized as opposed to specialized, but also in terms of how we can support them in a more scalable way over the long term. But we still do have a lot of clients that are on-prem clients with pretty specialized solutions, and we're still delivering those. So it's a real mix at the moment. It's a true hybrid. And I think as a result of that, you do see some more variability in margins. You see more variability quarter-by-quarter in revenues. But we are kind of getting back to a normalized mode in terms of change requests, in terms of deliveries, in terms of new sales. And we are really encouraged by the SaaS orientation of the new sales. The one thing I would say about change requests, though, is As we move forward in signing more clients in a SAS format, we are going to have lower change request revenues going forward because it's less specialized, more standardized, but more stable and very sticky. And so I don't think we're going to see an immediate change there, but I just would say over the longer term, we would expect that to kind of moderate a bit in favor of more sticky and stable revenue coming from SAS.

Thank you.

Our next question comes from Craig Seegenthaler with Bank of America. Your line is open.

Good morning, Adina.

Good morning.

So my question is on cash equities. A major competitor increased the pricing of trades in the opening, closing auctions this past quarter. And NASDAQ has high market share for these trades. So you're wondering if NASDAQ also has the ability to raise pricing.

Well, I think that we've had very stable pricing in our auctions for a long time. I think there were some changes that our competitors did a couple of years ago in that space. We've been very, very stable there. And I think that we continue to think we provide a very, very high value in the opening and closing auctions. We think we're paid for that value. And I think our clients appreciate the execution quality they get. So we see that more as a steady as we go because of the fact that, you know, we provide a great service and we do feel like that, you know, we're rewarded for that. Obviously, we're really excited about what happened with the Russell because that was a, you know, that's a big event. And then you have the quarterly, you know, the quad witches, you have other rebalances. You know, those are big events for us. We invest a lot in our infrastructure to support those events. Those are surge moments, and we feel great about our ability to execute in those moments, but we invest a lot to make that happen, and I think, therefore, we're paid appropriately for that, but that's kind of how we're looking at it right now.

Thank you.

Our next question comes from Kyle Voigt with KBW. Your line is open.

Hey, good morning. Thanks for taking my question. Just wondering if you could speak a bit about M&A. You've delivered quite a bit to 2.7 times net debt to EBITDA. Can you remind us where you feel comfortable taking leverage to on a net basis, given the current business mix and assuming you find an attractive acquisition opportunity? And then just regarding the M&A environment, Over the past few years, you've been looking at very attractive assets in terms of secular growth rates or medium-term growth rates and improving the growth profile of NASDAQ as a whole. I guess in the public markets, we've seen valuations come in quite a bit for some of the higher growth assets. Have you started to see that in the private markets and has basically the bid-ask spread kind of narrowed as we're looking at the environment today versus maybe where we were at a year ago?

Sure. I mean, Anne, do you want to answer the first part of the question in terms of leverage ratios?

Yeah, I'll answer the question around sort of where we would take the leverage ratios. You know, there's a lot of dependencies there, Kyle, in terms of, you know, what is the M&A opportunity, how quickly we could delever. I think, you know, maybe the best point of reference is, you know, what we did at the Verifin deal where we took the leverage up to 3.9%. and on a growth basis. And then we're back down to 2.9 now. And so you can think about it that way. We don't have a, like, there's no hard and set rule. You know, it's very circumstance-based. And obviously, we'd be working with the rating agencies on a, you know, on our, on whatever our deleveraging plan would be in association with that. So, yeah.

And I mean, I think the one thing we do say is that we do like our investment grade rating. And so we would work with the rating agencies to understand, you know, looking at deals and making sure that we factor in our investment grade rating as we're looking at and financing deals. So that's how we generally look at it. In terms of the M&A environment, it is, you know, it is definitely a changing environment right now. I also think it takes time for companies to recognize what, you know, in a changing market cap environment, it takes time for companies to understand what their true value is. over time. Is the market going to recover and they feel that they're going to be able to grow their way into their market cap very quickly, or their old market cap very quickly, or are they understanding that this might be just a different longer-term environment? And I think that definitely factors into receptivity to M&A, both in the private markets and the public markets. We are definitely seeing in the private markets, generally speaking, reductions in valuations, but that's kind of in line with the public markets or maybe not quite so much, not quite as dramatic. But again, that's one thing to have that as a point in time reference for a CEO. It's another thing to think that that's the value that they should sell their company at. So I still think it's a very dynamic environment. But I think, Kyle, we are always evaluating opportunistic ways for us to continue to drive our strategy forward, but we are really focused on organic growth. I mean, that is The vast majority of our focus inside of NASDAQ is how we want to continue to sustain our organic growth with us also looking at M&A, like small deals like Metro, and other things that we might do as small to medium bolt-ons as we continue to grow out our business.

Very helpful. Thank you. Sure.

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

Hey, good morning. Just a question on ESG. I was hoping you might be able to remind us how much that contributes in revenue today, given some of the acquisitions that you've done. And when you look at the offerings that you have on the ESG side, which product services are on ESG you think could be the most meaningful to growth in ESG revenues at NASDAQ? And as you think about the offerings that you have on that side, how does that stack up relative to where you'd like to be in the marketplace with respect to ESG? Thank you.

Sure. So I think that if we don't disclose our ESG revenues separately from the rest of our corporate services revenues, but I would say that it is definitely the highest growth part of the business, and it is helping drive to the higher growth rates we're seeing in IR and ESG right now. As we, you know, we've given out some thoughts at the last Investor Day as to what we hope to achieve in terms of revenues between now and 2024 or 5. And we definitely feel that we're at least on track with that. And so, and we continue to invest there. And so as we get into our Investor Day this year, we'll hopefully be able to give you a little bit more content and color around that so that we can continue to help you understand how much of a business that's becoming for us. And we're quite excited about it. But I would point out that there are several components to it. But within the corporate space, right now, the advisory business is actually the highest demand part of the business. But more and more, it's moving into reporting. So at first, the companies were saying, five years ago, they were saying, what is ES&G and how do I communicate with investors around it? We help them think about their programs, mature their programs. We now have kind of annual contracts with clients to help them manage those programs. in terms of communicating appropriately with investors. Increasingly, though, we're seeing more and more companies onboarding onto OneReport and now METRIO for collecting data and reporting that data out to the rating agencies, and that's going to be the long-term growth driver for us. Definitely, as companies are maturing their programs, it's going to be the tools that we provide to them that really help them mature those programs and sustain them. And then the last, the other part of the business that we don't talk about a lot, because it is very, very small, like really small, but in, within our European markets business, we do have a carbon removal marketplace called Puro very early days. But at that, you know, even though it's, you know, I would say, just say it's like $2 million in revenue today. It's really small. It is growing very quickly in terms of getting more suppliers on into the platform. and getting corporates more and more opportunities to offset their carbon output with true high-quality carbon removals. And we see that as kind of a 10-year, 5-year, 10-year plan to really build out a really successful marketplace there. And so that will also be a long-term growth driver for us. But today, these are relatively small but exciting and growing areas, and we will be able to give you more content at Investor Day.

Great. Thank you. Sure.

Our next question comes from Gautam Sivan with Credit Suisse. Your line is open.

Hey, good morning, and thank you for taking my question. Can you provide your outlook for how growth of recurring and fast revenues could be affected by a recession in 2023, specifically how the potential for industry consolidation could affect investment intelligence?

Sure. I mean, I think that we obviously don't provide specific guidance in any of our businesses. But I would say in our SaaS businesses, the general, what we've seen so far is that we have not seen any material changes in buying behaviors across our SaaS-oriented businesses. And that includes investment analytics, our IR and ESG services, our anti-financial crime solutions, and some of the newer sales in our market tech business. And so I think that we really don't see any sort of significant changes in behaviors there. But as we go into a recessionary environment, and that's hard to predict right now, but if we were to go into that and have that as a sustained economic environment that we're navigating through in 2023, I think that we would still look at the following. Our products are very sticky because of the fact they provide such important services to clients to navigate the capital markets in every environment. In some cases, they're technology that are the capital markets. And so we do think they're very sticky. I think in terms of buying decisions, in a protracted recessionary environment, some of those buying decisions will take longer. We could have companies, as you talked about, that could have some M&A and have some on the edges, some changes in their corporate status. And that will obviously have some effect on retention. But again, we're talking very high retention products. very, very important products, very sticky products. In terms of M&A, though, in the financial industry generally, if we look back over prior recessionary periods, you don't actually see a lot of M&A among banks and among asset managers as a general matter. On the edges, yeah, but we're talking thousands. We have 3,000 banks and we have 3,000 asset managers that use our services. So it's just not going to be a material part of the calculus in terms of our services just based on the breadth and depth of the companies we support. And also, by the way, I think it's 10,000 corporate clients that use our IR and ESG services. So just by the scale of who we are, M&A is not going to be a huge factor. But we will certainly provide you updates if we're seeing changes there.

Got it. And just as a follow-up question on compensation, like has the demand or work with talent in the technology space changed? And do you think that can help decelerate some of the expense growth there?

Yeah, I think that it's interesting. Certainly, we've been doing the right things to make sure that we attract and retain great talent. And I feel very good about how we've been managing our compensation in this competitive environment. We have, I would say, in the last six weeks to eight weeks, started to see, you know, more people really wanting to come to NASDAQ, frankly. You know, we're a really strong company, and we have a strong financial profile. And I think that, you know, some people who left the company are coming back. You know, employees that are in some of the more hard-hit parts of the technology industry are understanding the benefits of working in a place like NASDAQ. And so I don't know yet, Bhutan, how much that might impact comp, but I would say that we feel good about our ability to attract great talent here.

Thank you for taking my question. Sure.

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

Good morning, and thank you for taking my question. Could you please give us more color on your migration into the cloud? And I think at the end you mentioned the first migration will be completed in the fourth quarter this year. Could you please talk about what have you learned so far in this process, and how does that impact your process to migrate other systems in the future? Thank you.

Sure. Hey, Owen. Yeah, so we're actually quite excited about the progress we're making with AWS. So just to remind everyone, AWS is committed to create a private local zone within the Carteret Data Center, which is our primary data center in New Jersey, to support our markets in a cloud environment. But recognize, okay, so if we just take one step back, over the last 10 years, we've really been focused on moving all of what we call our surrounding systems into a public cloud environment. So our market operation systems and some of the client-facing systems that we have to support trading. But the trading systems themselves, the matching engine itself, has always been an on-premise deployment system. So AWS is coming into our data center. We're moving our first options market into the AWS outpost infrastructure. Our plan is to do that in the fourth quarter. We are on track with that. What we've been learning is really helping us making sure we're optimizing for power in the context of bringing the AWS infrastructure into the data center while we build out the data center. So over the next two years, we're going to be expanding the data center to in connection with Equinix. That's our partner who really is working on that. And that will also expand our power. As we work with AWS in the first iterations of putting Outposts in and getting them up and running, we're just making sure we're managing to the power of that infrastructure in connection with obviously the power needs of all of our clients. And so that's the one thing that we're finding it's really interesting to learn through. But at the same time, We are very comfortable that we're moving now. We've moved MRX onto Fusion. We've tested that in an on-prem environment with our clients as a baseline, and we now get to, therefore, start testing with our clients in the fall in the new environment and to make sure that we're delivering the same performance. So we're well underway, and we're learning a lot, and it's been a great partnership, and we feel very good about it.

Got it. Thank you very much.

Sure. Sure. Thank you, and that's all the time we have for questions. I'd like to turn the call back over to Adina Friedman for closing remarks.

Well, thank you very much, and it's really, thank you so much for spending time with us. We continue to be excited and proud of the results we've delivered, and we will continue to update you on our progress as we heard, and we will continue to update you on our, thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.