NASDAQ reports fourth quarter 2016 with record revenues
NASDAQ reports fourth Quarter 2016 with record revenues1; announces segment realighment and rebranding of fixed income
- Net revenues were a record $599 million in the fourth quarter of 2016, up 12% year-over-year. Subscription and recurring revenues2 in the fourth quarter of 2016 represented 75% of total net revenues.
- Revenues in non-trading segments3 in the fourth quarter of 2016 grew 11%, including organic revenue growth of 5%4
- At December 31, 2016, the company achieved $38 million in annualized run-rate cost synergies for the acquisitions completed in 2016 out of a targeted $60 million expected upon completion of integration.
- Fourth quarter GAAP 2016 diluted loss per share was $1.35. Non-GAAP diluted EPS was $0.95. GAAP diluted EPS declined $2.23 from the fourth quarter of 2015, while non-GAAP diluted EPS increasedm $0.06, or 7%.
- Non-GAAP results exclude $646 million in pre-tax charges primarily related to the write-off of the eSpeed trade name.
- Nasdaq realigned reporting segments to better reflect client orientation. A new Corporate Servicesm segment incorporates Listing Services and Corporate Solutions while Market Technology is now a stand alone segment.
Nasdaq, Inc. (Nasdaq: NDAQ) reported financial results for the fourth quarter of 2016. Fourth quarter net revenues were $599 million, up $63 million or 12% from $536 million in the prior year period, driven primarily by a $54 million positive impact from acquisitions. Organic growth in non-trading segments was 5%4 as compared to the fourth quarter of 2015.
“As Nasdaq’s new CEO, I’m excited to have the privilege to lead one of the best businesses in the world as we pursue our mission to help our clients more efficiently and effectively navigate the global capital markets,” said Adena Friedman, President and CEO, Nasdaq. “Positioned at the intersection of technology and the capital markets, Nasdaq’s objective is to support businesses, capital formation and job creation that serves as a catalyst for global economic growth. The relentless focus on our partnership with investors, corporations, exchanges, banks and broker dealers will continue to serve as the cornerstone of our evolving and advancing service, product and technology offerings as well as provide the foundation and infrastructure that powers global markets.”
Ms. Friedman continued, “Looking at the fourth quarter 2016, I’m pleased with the strong underlying performances across the majority of our businesses, as reflected in our growth and record revenues. We also took strategic steps to better align our business segments, management, resources and clients. While this had an impact on our quarterly results, we feel it puts us in a stronger position to execute on the market opportunities in front of us.”
“Looking ahead to this year, we will remain focused on the successful integration of our acquisitions to ensure their full potential is delivered to our clients and shareholders, the commercialization of important new technologies that advance our clients ambitions and the ongoing and steady progression of our competitive position around the globe with the goal of delivering double digit total shareholder returns,” Ms. Friedman concluded.
GAAP operating expenses were $386 million in the fourth quarter of 2016, up $96 million from $290m million in the fourth quarter of 2015. The increase primarily reflects incremental operating expenses from the acquisitions closed in 2016, an insurance recovery recorded in the fourth quarter of 2015 and increased merger and strategic initiative costs.
Non-GAAP operating expenses were $324 million in the fourth quarter of 2016, up $39 million from $285 million in the fourth quarter of 2015. This increase primarily reflects $29 million of incremental operating expenses from the acquisitions closed in 2016 as well as $14 million due to organic growth,m partially offset by a $4 million favorable impact of changes in foreign exchange rates.
SEGMENT REALIGNMENT AND FIXED INCOME REPOSITIONING – Following Nasdaq’s changes to the leadership team, culminating with the transition of the CEO role to Adena Friedman, the company is implementing several changes:
- To better reflect client orientation and how management views the businesses, Nasdaq is realigning its segment reporting to integrate the Listing Services and Corporate Solutions businesses into a single Corporate Services segment. Market Technology is now reported as a separate reporting segment.
- Nasdaq is evolving its fixed income strategy under new leadership. The repositioning is designed to enhance the customer experience and will bring the company’s U.S. and European fixed income products and services together under a single brand called Nasdaq Fixed Income led by John Shay.
- Nasdaq has made the decision to end its NLX interest rate futures business. Nasdaq will be working with customers to manage the wind down of open positions in an orderly manner.
DISCUSSION OF NON-GAAP ITEMS – The following items were excluded from our fourth quarter 2016 GAAP results to arrive at non-GAAP results. These items totaled $646 million, or $2.27 per share after tax, and primarily reflect a non-cash charge of $578 million due to the write-down of the eSpeed trade name, following the rebranding of the U.S. Treasury business in conjunction with new leadership and an evolution of the strategy to better respond to continued business challenges. Other items include $23 million in amortization expense related to acquired intangible assets, $20 million in merger and strategic initiatives costs, $12 million in accelerated expense due to the retirement of the company’s former CEO for equity awards previously granted and $12 million in other charges. Refer to our GAAP to non-GAAP reconciliations for additional detail regarding the above charges.
“While there was an unusual level of charges in the fourth quarter of 2016, including those associated with the eSpeed rebranding and other items, the vast majority of these were non-cash in nature, and the company was successful in generating strong free cash flow excluding Section 31 fees of $584 million in 2016,” said Michael Ptasznik, Chief Financial Officer and Executive Vice President, Nasdaq.
Mr. Ptasznik continued, “During the period, the company set a new revenue high and continued making steady progress on integrating the 2016 acquisitions, including achieving total synergy realization of $38 million on a runrate basis at December 31, 2016.”
On a GAAP basis, net loss attributable to Nasdaq for the fourth quarter of 2016 was $224 million, or am loss of $1.35 per diluted share, compared with net income of $148 million, or $0.88 per diluted share, in the prior year quarter.
On a non-GAAP basis, net income attributable to Nasdaq for the fourth quarter of 2016 was $161 million, or $0.95 per diluted share, compared with $150 million, or $0.89 per diluted share, in the fourth quarter of 2015.
During 2016, the company repurchased 1.5 million shares for a total cost of $100 million. As of December 31, 2016, there was $429 million remaining under the board authorized share repurchase program.
At December 31, 2016, the company had cash and cash equivalents of $403 million and total debt of $3,603 million, resulting in net debt of $3,200 million. This compares to net debt of $2,063 million at December 31, 2015.
1 Represents revenues less transaction-based expenses.
2 Represents revenues from our Corporate Services, Information Services and Market Technology segments, as well as our Trade Management Services business, formerly referred to as Access and Broker Services.
3 Represents revenues from our Corporate Services, Information Services and Market Technology segments.
4 Refer to our reconciliations of U.S. GAAP to non-GAAP net income (loss), diluted earnings (loss) per share, operating income and operating expenses, and total variance impact included in the attached schedules.
Source: NASDAQ
