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    Nasdaq Inc (NDAQ)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$58.45Last close (Jan 30, 2024)
    Post-Earnings Price$58.60Open (Jan 31, 2024)
    Price Change
    $0.15(+0.26%)

    What went well

    • Adenza acquisition boosts growth prospects, with expected mid-teens ARR growth and strong cloud adoption, as 50% of new ACV bookings are cloud-based, enhancing growth and efficiencies .
    • Verafin shows strong momentum, signing Tier 1 and Tier 2 banks, leveraging a consortium data lake of 2,500 banks representing $6 trillion in assets to fight financial crime, with plans to expand into real-time payments and the UK market in 2024.
    • Nasdaq's leadership in digital assets, partnering with major players like BlackRock on ETFs, and providing technology solutions to exchanges and custodians, positions it well for growth in the evolving digital asset space.

    What went wrong

    • Nasdaq's cloud migration is progressing slowly, with only 14% of revenue currently from cloud services and the transition expected to be a "slow-moving train," potentially delaying revenue and margin improvements from cloud adoption.
    • Growth in the Surveillance segment was only 6% in the quarter, significantly lower than previous periods, which may indicate a slowdown in that business line.
    • The company has paused share buybacks to focus on deleveraging after the Adenza acquisition, maintaining a leverage ratio of 4.3x, which could limit financial flexibility and shareholder returns.

    Q&A Summary

    1. Integration of Adenza and Synergies
      Q: Can you update on Adenza integration and synergies?
      A: Nasdaq closed the Adenza acquisition on November 1. They combined teams under Tal, aligning sales, client delivery, operations, and technology. A clear synergy plan is in place, and early client conversations are extremely encouraging, though revenue synergies will take time to materialize.

    2. Adenza Revenue Growth Outlook
      Q: What's the expectation for Adenza's revenue growth in 2024?
      A: Nasdaq anticipates mid-teens ARR growth for Adenza, consistent with their medium-term outlook. Revenue dynamics may fluctuate due to timing of bookings and renewals, but demand drivers remain strong.

    3. Verafin Strategy and Growth
      Q: What's Verafin's strategy for 2024 and areas of client wins?
      A: Verafin aims to expand in real-time payments for small to medium banks and enhance AML solutions for Tier 1 and Tier 2 banks. They've signed another Tier 1 bank in Q4 and are focusing on the UK market for future growth.

    4. Capital Allocation and Buybacks
      Q: How is Nasdaq allocating capital post-Adenza deal, especially regarding buybacks?
      A: Nasdaq maintains a balanced capital allocation strategy, including dividends, share repurchases, and deleveraging. The pause on buybacks continues in Q1 to prioritize deleveraging, but they plan to resume offsetting dilution with share repurchases over time.

    5. Expense Outlook for 2024
      Q: Can you elaborate on the 5% pro forma expense growth for 2024?
      A: The midpoint reflects expense discipline, Adenza synergies, and targeted investments. Expenses could exceed 5% with higher growth and revenue-related costs, but they remain focused on efficiency.

    6. Retention Ratios for Adenza
      Q: Why did Adenza's retention ratios underperform, and what's expected ahead?
      A: Retention ratios declined due to specific client bankruptcies and banking events in 2023. Excluding the bankruptcy, gross retention was flat at 97%. There's no systemic issue, and retention is expected to remain solid.

    7. Sales Cycles Normalization
      Q: Can you discuss signs of sales cycle normalization?
      A: In Q4, Nasdaq saw a more normalized sales environment for corporate clients in IR solutions, with increased demand and signings. Asset owner solutions also experienced an uptick, but revenue impact will take time due to SaaS recognition.

    8. Digital Assets Strategy
      Q: What are Nasdaq's plans in digital assets after halting custody services?
      A: Nasdaq continues to provide technology for cryptocurrency exchanges, supporting digital assets in trading, clearing, settlement, and surveillance. They've built a custody solution to offer globally but chose not to launch as a custodian themselves.

    9. Operating Leverage and ARR vs. Revenue
      Q: How does Adenza's ARR influence operating leverage management?
      A: Nasdaq focuses on operating margin and leverage on a GAAP basis but recognizes that ARR provides a better economic view. They continue to manage operating leverage against reported revenue while considering ARR dynamics.

    10. CapEx Expectations for Adenza
      Q: Any CapEx needs for Adenza's tech improvements?
      A: Adenza's technology foundation is strong, with ongoing R&D investments. No significant CapEx is expected; efforts focus on optimizing cloud implementation without major capital expenditure.

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