Q2 2024 Earnings Summary
- Nasdaq's Fintech solutions, particularly in Financial Crime Management Technology (Verafin), are experiencing robust demand, with momentum in signing new Tier 1 international banks, highlighting the durability and growth potential of the business across different macro environments.
- The company is ahead of schedule in deleveraging, reducing its leverage ratio to 3.9x, and generating strong free cash flow, enabling continued share repurchases and signaling strong capital management.
- Nasdaq is successfully implementing price increases, upselling existing clients, and achieving early strategic renewals, contributing to strong revenue and ARR growth in its Fintech segment, particularly in Capital Markets Technology.
- Nasdaq's strong revenue growth in Capital Markets Technology this quarter was partly driven by a strategic early renewal, and management expects more normalized growth in the second half, indicating potential slowdown in revenue growth.
- Data and Listings segment faces headwinds due to lower amortization of prior listing fees, which is expected to increase from $1 million in Q2 to about $3 million in each of the next four quarters, potentially impacting revenue growth in this segment.
- Verafin's expansion into Tier 1 international banks will take time, with implementations ranging from 6 months to a year, and current revenue contribution is still very small, delaying expected revenue growth from these initiatives.
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Verafin's Growth with Tier 1 Clients
Q: What is the growth outlook for Verafin, especially with Tier 1 clients?
A: Verafin has signed a Tier 1 international bank in July, highlighting growing interest from large clients. Although revenue contribution from Tier 1 and Tier 2 banks is currently small due to implementation times of 6 to 12 months, the company expects increased momentum and more regular signings in the coming years. -
Pricing Strategy in Fintech Growth
Q: How are price increases contributing to fintech growth?
A: Approximately half of the revenue growth for AxiomSL and Calypso comes from upgrades and upsells, while the other half is from new sales and price increases. Price adjustments vary by product; some contracts include CPI increases, while others implement price changes upon renewal based on added value. -
Cross-Selling Opportunities and Pipeline
Q: How is Nasdaq leveraging cross-sell opportunities?
A: Cross-selling constitutes 10% of Nasdaq's pipeline. In the quarter, they completed four cross-sells, including selling AxiomSL to Calypso clients, facilitated by data API connectors between the products. They are also promoting Verafin solutions to existing clients, with a Tier 1 client adopting Verafin in July. -
Capital Allocation and Deleveraging Plans
Q: What are the plans for deleveraging and capital allocation?
A: Nasdaq is prioritizing deleveraging by repaying approximately $50 million in commercial paper. Following this, they plan to be opportunistic with capital allocation, including share repurchases to offset employee dilution. -
IPO Market Outlook and Financial Impact
Q: When will improvement in the IPO market impact financials?
A: Despite strong market performance, the IPO environment remains muted, with modest year-over-year improvement. Many companies are targeting IPOs in the first half of 2025, so significant financial impact is expected then. -
Growth in Capital Markets Technology
Q: What's driving growth in Capital Markets Technology?
A: Growth is driven by broad momentum, including a strategic early renewal, five new clients, and 29 upsells. The company anticipates more normalized growth in the second half compared to the strong first half. -
Index Options Performance and Pricing
Q: How is the index options business performing, and what's the pricing approach?
A: Nasdaq's index options revenue has doubled, with volumes up 50% year-over-year. Demand remains strong despite premium pricing due to the value in hedging index exposure. The company is considering adding more indexes to this offering. -
Impact of AI Initiatives like Dynamic M-ELO
Q: How will AI innovations affect market share and financials?
A: The Dynamic M-ELO order type, enhanced by AI, has increased volumes and fill rates by 20%. While it doesn't significantly impact market share, it contributes positively to revenues as a premium product. Replicating this technology is complex due to proprietary AI algorithms. -
Macroeconomic Effects on Verafin's Growth
Q: How might macro conditions affect Verafin's growth?
A: Verafin provides mission-critical technology for risk management and regulatory compliance, which remains essential across economic cycles. Therefore, macroeconomic conditions are unlikely to significantly impact its growth trajectory. -
Listings Amortization Headwind Details
Q: What's the expected impact of listings amortization on revenues?
A: There was a $1 million year-over-year headwind in Q2 due to initial listings amortization, which will increase to $3 million in Q3 and continue for the next three quarters. -
Strategic Business Review and Potential Divestitures
Q: Is Nasdaq considering selling any businesses like Solovis?
A: While not commenting on specific rumors, Nasdaq regularly assesses its portfolio for strategic fit. The company emphasizes that the Nordic Exchange is strategic and integral to its operations. -
Investor Relations Solutions Amid Delistings
Q: Are there upsell opportunities in IR solutions despite delistings?
A: Nasdaq continues to convert clients to paying customers as IPO packages expire. However, delistings and budget constraints are headwinds, affecting conversion rates and the uptake of additional services.