Nasdaq, Inc.

Good day and thank you for standing by. Welcome to NASDAQ's second quarter 2023 results conference call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Atul Garrett, Senior Vice President, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss NASDAQ's second quarter 2023 financial results. On the line are Adina Friedman, our Chair and Chief Executive Officer, Ann Dennison, our Chief Financial Officer, John Zecca, our Chief Legal Risk and Regulatory Officer, Tal Cohen, President, and other members of the management team. After prepared remarks, we'll open up the line to Q&A. The press release, earnings presentation, and supplemental addenda information are on our website. We intend to use the website as a means of disclosing material, non-public information, and complying with disclosure obligations under SEC Regulation FD. I would like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations, and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these projections. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and on periodic reports filed with the SEC. I will now turn the call over to Adita.

Thank you, Atto, and good morning, everyone. Thanks for joining us. My remarks today will focus on NASDAQ's second quarter business and financial performance, the solid progress we're making to deliver on our strategic objectives, and how our recently announced acquisition of Adenza advances our vision to become the trusted fabric of the world's financial system. I'll then turn the call over to Anne for a review of our financial results. I'd like to begin with an update on the strategic transformation underway at NASDAQ. Since 2017, when we sharpened our focus towards becoming a leading technology provider to the global financial system, we've made significant progress on our strategic journey by allocating capital to our biggest growth opportunities and reorienting our businesses to align better with the key megatrends shaping the global economy. Over that period, we have focused on our innovation strategy on maximizing the potential of cloud computing and AI across our products and markets, while strategically divesting more than $700 million in non-core assets. We've also delivered consistent execution in our operating business through dynamic operating environments, demonstrating the power of the diversified platform we have built at NASDAQ. That execution strength is reflected in our second quarter performance, which I'll discuss shortly in greater detail. But first, let's spend a few moments on Adenza. When we announced the acquisition of Adenza on June 12th, we took a seminal step in our journey to becoming a leading technology provider to the global financial system. A consistent pillar throughout NASDAQ's and Adenza's journeys have been our dedication to our clients. As the financial industry faces a steady stream of new regulations and reforms that present reputational and financial risk, we are positioned to be a key partner in helping participants manage those risks. Most notably, we will enable our clients to meet regulatory mandates to reduce financial crime, manage liquidity risk, and provide resilient capital markets infrastructure, all while reporting on their compliance to over 100 regulators and agencies around the world. The addition of Adenza's capabilities to the NASDAQ platform will increase our serviceable addressable market by approximately 40%. We saw further evidence of the power of the Adenza business and its performance during the first half of 2023. The company has maintained strong annualized recurring revenue or ARR growth in the high teens as compared to the prior year period, which was underpinned by continued strength in growth and net revenue retention at 98% and 115% respectively. As we discussed at our initial investor call post-announcement, the fundamental drivers of growth in Adense's business comes from new client sales, cross-sells, and upsells to existing clients. Consistent with their strong performance in signing new clients over the last two years, which is provided in more detail in the supplemental information that we provided this morning, both Calypso and Axiom SL continue to demonstrate strong growth across new logo wins and client upsells in the first half of 2023 validating our acquisition thesis. Specifically, Calypso signed seven new clients and completed upsells to 40 existing clients in the first half of the year, while Axiom SL added seven new logos, two of which were cross-sells of Calypso clients, and completed upsells to 25 existing clients during the period. The recent performance of Adenza furthers our conviction that we are working towards acquiring a business that delivers world-leading solutions that meet the growing dynamic regulatory needs of our clients. Upon closing of the addenda acquisition, our focus will be to maximize the client and shareholder benefits. With our strong combined free cash flows, our capital allocation priorities over the next three years are as follows. First, we will begin to delever to meet the debt to EBITDA targets that we disclosed upon deal announcement. Second, we plan to continue to increase our dividends to achieve a 35% to 38% payout ratio over the coming three to four years. And third, we plan to buy back stock to offset employee and deal-related equity dilution. We do not anticipate making any significant acquisitions that would deter us from executing sizable stock buybacks over the next three years. We expect the transaction to close within approximately five to eight months subject to regulatory approval and customary closing conditions. And we look forward to updating you as you move through the closing and integration process. Now turning to the second quarter results. I'm pleased to report NASDAQ's continued solid financial performance in the second quarter of 2023. We achieved $925 million in net revenues, an increase of 4% compared to the prior year period, and an increase of 4% also on an organic basis, excluding the impacts of changes in FX and in acquisition and divestiture. Revenues across our solutions businesses were $674 million, up 6% from the prior year period on a reported and organic basis. Our total ARR increased 6.5% to $2.1 billion. Annualized SAS revenues totaled $755 million in the second quarter, which represents an annual growth rate of 11%. Our SAS revenues comprise 36% of total company ARR. In our capital access platforms division, we delivered $438 million in total revenue in the second quarter, a 4% increase from the prior year period. Our index revenues grew 4% organically from the prior year period. The rebound in our index business reflects strong year-over-year market performance and inflows of $25 billion over the past 12 months, including $10 billion in the second quarter, partially offset by lower volumes in index-related futures products. Revenues within Workflow and Insights grew 5% organically over the prior year period, reflecting sustained demand for IR and ESG solutions, and steady analytic solution sales to asset managers. Similar to the start of the year, we continue to experience elongated sales cycles in certain products within this business, as clients escalate buying decisions through more levels of approval, which has had a modest impact on the year-over-year growth. Overall, across the business, we continue to see opportunities to drive wallet share expansion through cross-sell campaigns to existing clients, Especially as uncertainty in the capital markets often leads to increased demand for analytics solutions from asset owners and asset managers, as well as corporate services across investor relations and governance. Our data and listing services revenues grew 2% organically. We experienced 5% growth in our data revenues, primarily driven by growth in our recurring data revenues across our international footprint. With a weaker IPO environment, we saw stable listings revenues year over year. We maintained our track record for winning new operating company listings, and year-to-date, NASDAQ has welcomed 48 new operating company IPOs for a 77% win rate, including two of the top three operating company IPOs by proceeds raised. In addition, we have a strong pipeline of companies that have committed to NASDAQ. We remain well-positioned to capture future new listing activity and are in close contact with these companies as they evaluate their IPO timelines. Turning abroad, we welcomed six new listings across our European markets, bringing our year-to-date total to 13 new listings. NASDAQ Stockholm continues to be one of the leading European exchanges for small to medium enterprise listings, welcoming nine new listings in 2023 year-to-date. Next, in our market platforms division, we delivered $397 million in total revenues during the second quarter. a 2% organic increase from the prior year period, driven primarily by an increase in the marketplace technology revenues, which grew 5% compared to the prior year period. In our trading services business, revenues were flat organically compared to the prior year, with higher U.S. cash equities revenue offset by lower European equities revenue. I would like to highlight the performance of NASDAQ's closing cross during the annual Russell U.S. Index's reconstitution, which occurred in late June. For NASDAQ listed securities, The closing cross successfully executed approximately 2.6 billion shares representing $62 billion in market value in just over eight tenths of one second. This represented the second highest volume of shares crossed since we implemented the closing cross in 2004. I'm incredibly proud of our continued leadership in operating the industry's most robust and resilient market infrastructure. Turning now to two strategic portfolio and capital allocation decisions within our market platforms business. First, As we previously announced, during the period, we entered into an agreement to sell our European power trading and clearing business to the European Energy Exchange. This decision aligns with our renewed focus towards investing in opportunities that will deliver the most value to our clients and shareholders and build on our strong position as a leading market operator of European equities, equity derivatives, and fixed income, while also expanding our leadership and providing sustainability solutions with PuroEarth. our voluntary carbon removal marketplace. We expect the closing to take place within the first half of 2024 upon completing all outstanding closing conditions. The transfer of membership interests will occur shortly thereafter. Turning next to our digital assets business, this quarter, considering the shifting business and regulatory environment in the U.S., we've made the decision to halt our launch of the U.S. digital assets custodian business. and our related efforts to pursue a relevant license. However, we continue to build and deliver technology capabilities that position NASDAQ as a leading digital asset software solutions provider to the broader global industry. This includes advancing our custody solution as a technology platform to serve the broader global digital assets marketplace. More broadly, we remain committed to supporting the evolution of the digital assets ecosystem in a variety of ways, among them through our ongoing engagement with regulators, the delivery of comprehensive technology solutions across the trade lifecycle, and through our partnerships with potential ETF issuers to support tradable exchange listed products. And we'll discuss the modest financial impact of our decision for the remainder of 2023. Turning to the marketplace technology business, revenue grew 5% reflecting growth in both trade management services and market technology. During the quarter, Chile's Central Security Suppository, DCV, announced a significant expansion in its partnership with NASDAQ with plans to leverage our technology to issue and settle digitized securities. The expansion of our existing partnership with DCV highlights the increasing global desire for market infrastructure that can leverage existing security systems to service emerging asset classes. Additionally, we signed a partnership with Brazil's B3 Exchange to deliver a new clearing platform. The multi-year agreement will focus on leveraging our technology to evolve our existing clearing settlement and risk management capabilities to support the rapid growth of the Brazilian market. We also completed deliveries for seven major market infrastructure projects during the period, including powering the launch of the Stock Exchange of Thailand's new trading system, which included additional market data distribution and market surveillance systems. This implementation of our next-gen trading technology solution marks a significant milestone in the ongoing development of one of Asia's fastest-growing exchanges and illustrates our ability to bring our modern market infrastructure technology to new partners in the region. Finally, turning to our anti-financial crime division, we delivered $89 million in total revenue for the second quarter, a 19% increase in the prior year period, all of which was organic. We continue to expand client relationships, signing 51 new financial institutions to our fraud and anti-money laundering, or what we call FRAML solutions, including 47 small to medium-sized banks. As we previously announced, we signed four large financial institutions in the second quarter, including two tier one and two tier two clients. The growing adoption of our FRAML solutions across the banking sector is a strong indication that banks of all sizes are prioritizing risk management spend and looking to NASDAQ to provide mission-critical anti-financial crime solutions. Our surveillance solutions also continued to perform well, with 13% revenue growth this quarter, which was all organic, led by increased subscriptions from both new and existing clients. We added 10 new clients in the second quarter, reflecting strong demand for our trade surveillance and our crypto market surveillance solutions. We had several large clients sign long-term renewals in the first half of the year that included pricing adjustments to reflect the increasing value that our surveillance solutions provides to our clients. To wrap up, our second quarter results demonstrate how NASDAQ's client-centric culture and diversified business model provides the stability to perform well in different market environments. I would also like to reiterate our excitement around the acquisition of Adenza and the impact we believe it will have for our clients and shareholders. It will accelerate our strategic journey. enabling us to deliver even more mission-critical platforms that enhance the liquidity, transparency, and integrity of the global financial system. Adenza, combined with our powerful existing solutions, sets us up for faster growth and even greater success in the years to come. And with that, I will now turn the call over to Anne to review our financial details.