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Nasdaq Reports Third Quarter 2016 Earnings; Delivers Record Subscription and Recurring Revenues(1)

  • Net revenues2 were a record $585 million in the third quarter of 2016, up 11% year-over-year.
  • Third quarter 2016 diluted EPS was $0.77.  Non-GAAP3 diluted EPS for the third quarter 2016 was $0.91.
  • Subscription and recurring revenues in the third quarter of 2016 were a record and represented 75% of total net revenues.  Information Services, Technology Solutions, and Listing Services segments each achieved quarterly record net revenues.
  • At September 30, 2016, the company had achieved $23 million in annualized run-rate cost synergies for the acquisitions completed in 2016 out of a targeted $60 million expected upon completion of integration.
  • During the third quarter of 2016, Nasdaq repurchased $55 million of its common stock.  Total repurchases from the beginning of the year through September 30, 2016 were $100 million.

NEW YORK, Oct. 26, 2016 (GLOBE NEWSWIRE) -- Nasdaq, Inc. (Nasdaq:NDAQ) today reported strong financial results for the third quarter of 2016.  Third quarter net revenues were $585 million, up $56 million or 11% from $529 million in the prior year period, driven primarily by a $58 million positive impact from acquisitions.  Organic revenue growth in the non-trading segments4 in the third quarter of 2016 was offset by a contraction in trading revenues when compared to an especially volatile trading environment in the prior-year period.

“The third quarter’s strong financial results showcase how the complementary nature of Nasdaq’s business mix can deliver against a variety of macro backdrops.  While our marketplaces were subject to lower volatility and industry volumes compared to the prior year period, the company’s non-trading segments expanded to new record levels,” said Bob Greifeld, CEO, Nasdaq.

Mr. Greifeld continued, “The Information Services, Technology Solutions, and Listing Services segments were especially strong in the third quarter, but more importantly they each represent areas where we have found attractive opportunities to invest and where our technology leadership can be leveraged effectively to benefit our clients and create new opportunities for growth.”

Operating expenses were $352 million in the third quarter of 2016, up $54 million from $298 million in the third quarter of 2015.  The increase primarily reflects incremental expenses from the acquisitions of Nasdaq CXC, formerly Chi-X Canada (February 2016), Marketwired (February 2016), Boardvantage (May 2016), and ISE (June 2016).

Non-GAAP operating expenses were $317 million in the third quarter of 2016, up $41 million from $276 million in the third quarter of 2015.  This increase primarily reflects $29 million in incremental operating expenses from the acquisitions closed in 2016 as well as $13 million due to organic growth.

“During the third quarter, the company made significant progress integrating our recent acquisitions, moving the synergy achievement up to $23 million on a run rate basis, which contributed to meaningful accretion to our non-GAAP results,” said Michael Ptasznik, Chief Financial Officer and Executive Vice President, Nasdaq.

Mr. Ptasznik continued, “We also saw an attractive opportunity to return $55 million to shareholders through the share buyback program in the third quarter.  I’m pleased to say that in addition to executing on several acquisition opportunities this year, the company has returned 54% of our non-GAAP net income year-to-date to shareholders through dividends and buybacks.”

Net income attributable to Nasdaq for the third quarter of 2016 was $131 million, or $0.77 per diluted share, compared with $138 million, or $0.80 per diluted share, in the prior year quarter.  On a non-GAAP basis, net income attributable to Nasdaq for the third quarter of 2016 was $154 million, or $0.91 per diluted share, compared with $151 million, or $0.88 per diluted share, in the third quarter of 2015.

The company repurchased 800,938 shares for $55 million in the third quarter of 2016 at an average price of $68.19.  As of September 30, 2016, there was $429 million remaining under the board authorized share repurchase program.

At September 30, 2016, the company had cash and cash equivalents of $257 million and total debt of $3,709 million, resulting in net debt of $3,452 million.  This compares to net debt of $2,063 million at December 31, 2015.

1 Represents revenues from our Information Services, Technology Solutions, and Listing Services segments, as well as our Trade Management Services business, formerly referred to as Access and Broker Services.

2 Represents revenues less transaction-based expenses.

3 Refer to our reconciliations of U.S. GAAP to non-GAAP net income, diluted earnings per share, operating income and operating expenses included in the attached schedules.

4 Represents revenues from our Information Services, Technology Solutions, and Listing Services segments.

BUSINESS HIGHLIGHTS

Market Services (36% of total net revenues) - Net revenues were $213 million in the third quarter of 2016, up $13 million when compared to the third quarter of 2015.  The increase primarily reflects an increase in revenues from the ISE and Nasdaq CXC acquisitions, partially offset by declines in trading volumes as compared to multi-year high industry trading volumes experienced in the third quarter of 2015.

Equity Derivatives (11% of total net revenues) – Net equity derivative trading and clearing revenues were $67 million in the third quarter of 2016, up $16 million compared to the third quarter of 2015.  The increase is primarily due to the inclusion of revenues from our acquisition of ISE in June 2016 and higher market share at The NASDAQ Options Market and Nasdaq PHLX, partially offset by lower industry trading volumes.

Cash Equities (10% of total net revenues) – Net cash equity trading revenues were $59 million in the third quarter of 2016, down $8 million compared to the third quarter of 2015.  This decrease reflects lower matched market share, lower industry trading volumes and lower U.S. average net capture, partially offset by the inclusion of net revenues associated with the acquisition of Nasdaq CXC.

Fixed Income and Commodities Trading and Clearing1 (3% of total net revenues) – Net fixed income and commodities trading and clearing (FICC) revenues were $18 million in the third quarter of 2016, down $5 million from the third quarter of 2015, due to declines in commodities and U.S. fixed income revenues and the impact of trading incentives on Nasdaq Futures (NFX) revenues. 

Trade Management Services (12% of total net revenues) – Trade management services revenues were $69 million in the third quarter of 2016, up $10 million compared to the third quarter of 2015, due to the inclusion of revenue from the acquisition of ISE and an increase in customer demand for network connectivity.

1 Our FICC business was formerly referred to as fixed income, currency and commodities trading and clearing.

Information Services (23% of total net revenues) – Revenues were $137 million in the third quarter of 2016, up $5 million from the third quarter of 2015. 

Data Products (18% of total net revenues) Data products revenues were $109 million in the third quarter of 2016, up $6 million compared to the third quarter of 2015 primarily due to growth in proprietary data products revenues, the inclusion of revenues from the acquisitions of ISE and Nasdaq CXC, as well as higher audit collections.

Index Licensing and Services (5% of total net revenues) – Index licensing and services revenues were $28 million in the third quarter of 2016, down $1 million from the third quarter of 2015.  The revenue decline was primarily due to a decrease in the value of underlying assets associated with non-ETP Nasdaq-licensed products and lower fees associated with derivative products licensing Nasdaq indices, due to lower volumes.

Technology Solutions (29% of total net revenues) – Revenues were $167 million in the third quarter of 2016, up $36 million from the third quarter of 2015.  The increase primarily reflects the inclusion of revenues from the acquisitions of Marketwired and Boardvantage, as well as $13 million in organic revenue growth in our Market Technology business.

Corporate Solutions (16% of total net revenues) – Corporate solutions revenues were $94 million in the third quarter of 2016, up $22 million from the third quarter of 2015.  The increase was due to the inclusion of revenues from the Marketwired and Boardvantage acquisitions.

Market Technology (13% of total net revenues) – Market technology revenues were $73 million in the third quarter of 2016, up $14 million from the third quarter of 2015.  The increase was driven primarily by growth in revenues from software licensing and support as well as surveillance products. 

Listing Services (12% of total net revenues) – Revenues were $68 million in the third quarter of 2016, up $2 million compared to the third quarter of 2015 primarily due to higher revenues in the Nordics due to new company listings.

CORPORATE HIGHLIGHTS

  • NFX growth continues Nasdaq’s commodities expansion.  NFX, a U.S.-based derivatives market for key energy benchmarks, has seen increasing traction since launch in July 2015.  During the month of September 2016, open interest in NFX products reached a record 1.2 million contracts, and during the third quarter of 2016, trading volume of 8.9 million contracts increased 16% from 7.7 million contracts in the second quarter of 2016.  Since its July 2015 inception, 118 firms have traded on NFX.
  • The Nasdaq Stock Market leads U.S. exchanges for IPOs and switches.  In the U.S. market, The Nasdaq Stock Market welcomed 79 new listings in the third quarter of 2016, including 31 IPOs such as Trade Desk, Apptio and Nutanix.  During the third quarter of 2016, 74% of all U.S. IPOs were listed on Nasdaq.  In addition, The Nasdaq Stock Market welcomed 16 switches thus far in 2016 with an aggregate market capitalization of $42 billion, including IHS Markit.  Nasdaq announced 24 new exchange-traded products (ETP) listings and one switch in the third quarter, bringing Nasdaq’s total ETP listings to 295, up 48% from the third quarter of 2015.
  • Corporate Solutions launches Nasdaq Influencers while Nasdaq IR Insight sees continued strong adoption.  Nasdaq has seen strong adoption of the next generation IR platform with 86% of companies upgraded since January.  Additionally, Nasdaq’s Corporate Solutions business launched Nasdaq Influencers, a new solution for communications and marketing professionals to discover and connect with the most relevant thought leaders in their industry and uncover new opportunities to share their news and information, insights and recommendations as well as drive brand identity and awareness.
  • Nasdaq sees strong growth in number of ETPs and assets tracking Nasdaq indexes.  The number of ETPs licensed to Nasdaq indexes increased to 289 at September 30, 2016 versus 267 at June 30, 2016, including several non-U.S. product launches in China, Taiwan, and Australia.  Two new Nasdaq-100 ETPs were listed in Hong Kong with BMO and BlackRock and one in Taiwan with Fubon Asset Management.  Additionally, BetaShares launched a series of Global Ex-Australia hedged ETPs based on Nasdaq indexes.  Overall AUM in exchange traded products (ETPs) benchmarked to all Nasdaq indexes increased 15% to $118 billion as of September 30, 2016 compared to September 30, 2015.

ABOUT NASDAQ

Nasdaq (Nasdaq:NDAQ) is a leading provider of trading, clearing, exchange technology, listing, information and public company services across six continents. Through its diverse portfolio of solutions, Nasdaq enables customers to plan, optimize and execute their business vision with confidence, using proven technologies that provide transparency and insight for navigating today's global capital markets. As the creator of the world's first electronic stock market, its technology powers more than 70 marketplaces in 50 countries, and 1 in 10 of the world's securities transactions. Nasdaq is home to more than 3,700 listed companies with a market value of $10.0 trillion and approximately 18,000 corporate clients. To learn more, visit: nasdaq.com/ambition or business.nasdaq.com.

NON-GAAP INFORMATION

In addition to disclosing results determined in accordance with U.S. GAAP, Nasdaq also discloses certain non-GAAP results of operations, including, but not limited to, net income attributable to Nasdaq, diluted earnings per share, operating income, and operating expenses, that include certain adjustments or exclude certain charges and gains that are described in the reconciliation table of U.S. GAAP to non-GAAP information provided at the end of this release.   Management uses this non-GAAP information internally, along with U.S. GAAP information, in evaluating our performance and in making financial and operational decisions. We believe our presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations. In addition, we believe the presentation of these measures is useful to investors for period-to-period comparisons of results as the items described below do not reflect ongoing operating performance.

These measures are not in accordance with, or an alternative to, U.S. GAAP, and may be different from non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating our business. We recommend investors review the U.S. GAAP financial measures included in this earnings release. When viewed in conjunction with our U.S. GAAP results and the accompanying reconciliations, we believe these non-GAAP measures provide greater transparency and a more complete understanding of factors affecting our business than U.S. GAAP measures alone.

We understand that analysts and investors regularly rely on non-GAAP financial measures, such as non-GAAP net income attributable to Nasdaq, non-GAAP diluted earnings per share, non-GAAP operating income and non-GAAP operating expenses to assess operating performance. We use these measures because they highlight trends more clearly in our business that may not otherwise be apparent when relying solely on U.S. GAAP financial measures, since these measures eliminate from our results specific financial items, such as those described below, that have less bearing on our ongoing operating performance.

Amortization expense of acquired intangible assets: We amortize intangible assets acquired in connection with various acquisitions. Intangible asset amortization expense can vary from period to period due to episodic acquisitions completed, rather than from our ongoing business operations. As such, if intangible asset amortization is included in performance measures, it is more difficult to assess the day-to-day operating performance of the businesses, the relative operating performance of the businesses between periods and the earnings power of Nasdaq. Management does not consider intangible asset amortization expense for the purpose of evaluating the performance of our business or its managers or when making decisions to allocate resources.  Therefore, we believe performance measures excluding intangible asset amortization expense provide investors with a more useful representation of our businesses’ ongoing activity in each period.

Restructuring charges: Restructuring charges are associated with our 2015 restructuring plan to improve performance, cut costs and reduce spending and are primarily related to (i) the rebranding of our company name from The NASDAQ OMX Group, Inc. to Nasdaq, Inc.,  (ii) severance and other termination benefits, (iii) costs to vacate duplicate facilities, and (iv) asset impairment charges. We exclude these restructuring costs because these costs do not reflect future operating expenses and do not contribute to a meaningful evaluation of Nasdaq’s ongoing operating performance or a comparison of Nasdaq’s performance between periods.

Merger and strategic initiatives expense: We have pursued various strategic initiatives and completed a number of acquisitions in recent years which have resulted in expenses which would not have otherwise been incurred.  These expenses include integration costs, as well as legal, due diligence and other third party transaction costs. The frequency and the amount of such expenses vary significantly based on the size, timing and complexity of the transaction. Accordingly, we exclude these costs for purposes of calculating non-GAAP measures which provide a more meaningful analysis of Nasdaq’s ongoing operating performance or comparisons of Nasdaq’s performance between periods.

Other significant items: We have excluded certain other charges or gains that are the result of other non-comparable events to measure operating performance.  For the three months ended June 30, 2016, other significant items include tax expense due to an unfavorable tax ruling received during the three months ended June 30, 2016, the impact of which related to prior periods, and the release of a sublease loss reserve due to the early exit of a facility. For the three months ended September 30, 2015, other significant items include an insurance recovery for litigation arising from the Facebook IPO in May 2012. We believe the exclusion of such amounts, which arise outside of the normal course of business, allow management and investors to better understand the financial results of Nasdaq.

Foreign exchange impact on revenue:  In countries with currencies other than the U.S. dollar, revenues and expenses are translated using monthly average exchange rates. Certain discussions in this release isolate the impact of year-over-year foreign currency fluctuations to better measure the comparability of operating results between periods. Operating results excluding the impact of foreign currency fluctuations are calculated by translating the current period’s results by the prior period’s exchange rates.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Information set forth in this communication contains forward-looking statements that involve a number of risks and uncertainties.  Nasdaq cautions readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking information.  Such forward-looking statements include, but are not limited to (i) projections relating to our future financial results, growth, trading volumes, products and services, order backlog, taxes and achievement of synergy targets, (ii) statements about the closing or implementation dates and benefits of certain acquisitions and other strategic, restructuring, technology, de-leveraging and capital return initiatives, (iii) statements about our integrations of our recent acquisitions, (iv) statements relating to any litigation or regulatory or government investigation or action to which we are or could become a party, and (v) other statements that are not historical facts.  Forward-looking statements involve a number of risks, uncertainties or other factors beyond Nasdaq’s control.  These factors include, but are not limited to, Nasdaq’s ability to implement its strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors detailed in Nasdaq’s filings with the U.S. Securities and Exchange Commission, including its annual reports on Form 10-K and quarterly reports on Form 10-Q which are available on Nasdaq’s investor relations website at http://ir.nasdaq.com and the SEC’s website at www.sec.gov.  Nasdaq undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

WEBSITE DISCLOSURE

Nasdaq intends to use its website, ir.nasdaq.com, as a means for disclosing material non-public information and for complying with SEC Regulation FD and other disclosure obligations. These disclosures will be included on Nasdaq’s website under “Investor Relations.”

NDAQF


 Nasdaq, Inc. 
 Condensed Consolidated Statements of Income 
 (in millions, except per share amounts) 
(unaudited)
           
   Three Months Ended 
  September 30,   June 30,   September 30,
    2016       2016       2015  
Revenues:           
Market Services  $   557     $   532     $   542  
Transaction-based expenses:           
Transaction rebates      (265 )       (256 )       (256 )
Brokerage, clearance and exchange fees      (79 )       (82 )       (86 )
Total Market Services revenues less transaction-based expenses      213         194         200  
           
Listing Services      68         68         66  
Information Services      137         134         132  
Technology Solutions      167         163         131  
           
Revenues less transaction-based expenses     585         559         529  
           
Operating Expenses:           
Compensation and benefits      168         164         150  
Marketing and advertising      8         8         6  
Depreciation and amortization      46         41         34  
Professional and contract services      40         35         33  
Computer operations and data communications      28         27         23  
Occupancy      23         19         22  
Regulatory      8         6         7  
Merger and strategic initiatives      12         35         4  
General, administrative and other      19         17         11  
Restructuring charges      -          33         8  
Total operating expenses      352         385         298  
           
Operating income      233         174         231  
           
Interest income      1         1         1  
Interest expense      (37 )       (32 )       (28 )
Other investment income      -          2         -   
Net income from unconsolidated investees      2         1         2  
                       
Income before income taxes      199         146         206  
Income tax provision      68         76         68  
           
Net income attributable to Nasdaq  $   131     $   70     $   138  
           
Per share information:           
Basic earnings per share  $   0.79     $   0.42     $   0.83  
Diluted earnings per share  $   0.77     $   0.42     $   0.80  
Cash dividends declared per common share  $   0.32     $   -      $   0.25  
           
Weighted-average common shares outstanding for earnings per share:          
Basic      165.6         165.0         166.9  
Diluted     169.5         168.2         171.5  
           


Nasdaq, Inc.
Revenue Detail
(in millions)
(unaudited)
           
   Three Months Ended 
   September 30,     June 30,     September 30, 
    2016       2016       2015  
MARKET SERVICES REVENUES           
Equity Derivative Trading and Clearing Revenues $   164     $   103     $   109  
Transaction-based expenses:           
Transaction rebates      (90 )       (53 )       (53 )
Brokerage, clearance and exchange fees      (7 )       (4 )       (5 )
Total net equity derivative trading and clearing revenues     67         46         51  
           
Cash Equity Trading Revenues     302         339         349  
Transaction-based expenses:           
Transaction rebates      (171 )       (198 )       (202 )
Brokerage, clearance and exchange fees      (72 )       (78 )       (80 )
Total net cash equity trading revenues     59         63         67  
           
Fixed Income and Commodities Trading and Clearing Revenues      22         26         25  
Transaction-based expenses:           
Transaction rebates      (4 )       (5 )       (1 )
Brokerage, clearance and exchange fees      -          -          (1 )
Total net fixed income and commodities trading and clearing revenues     18         21         23  
           
Trade Management Services Revenues     69         64         59  
           
Total Net Market Services revenues     213         194         200  
           
LISTING SERVICES REVENUES      68         68         66  
           
INFORMATION SERVICES REVENUES          
Data Products revenues     109         107         103  
Index Licensing and Services revenues     28         27         29  
           
Total Information Services revenues     137         134         132  
           
TECHNOLOGY SOLUTIONS REVENUES          
Corporate Solutions revenues     94         94         72  
Market Technology revenues     73         69         59  
           
Total Technology Solutions revenues     167         163         131  
           
Revenues less transaction-based expenses  $   585     $   559     $   529  
           


Nasdaq, Inc.
Condensed Consolidated Balance Sheets 
(in millions)
       
  September 30,   December 31,
   2016     2015 
Assets (unaudited)    
Current assets:      
Cash and cash equivalents $   257     $   301  
Restricted cash     19         56  
Financial investments, at fair value     238         201  
Receivables, net     349         316  
Default funds and margin deposits     3,323         2,228  
Other current assets     160         158  
Total current assets     4,346         3,260  
Property and equipment, net     342         323  
Deferred tax assets     768         643  
Goodwill     6,206         5,395  
Intangible assets, net     2,740         1,959  
Other non-current assets     406         281  
Total assets $   14,808     $   11,861  
       
Liabilities       
Current liabilities:      
Accounts payable and accrued expenses $   159     $   158  
Section 31 fees payable to SEC     27         98  
Accrued personnel costs     175         171  
Deferred revenue     216         127  
Other current liabilities     134         138  
Current portion of debt obligations     20         -   
Default funds and margin deposits     3,323         2,228  
Total current liabilities     4,054         2,920  
Debt obligations   3,689       2,364  
Deferred tax liabilities   980       626  
Non-current deferred revenue   191       200  
Other non-current liabilities   140       142  
Total liabilities     9,054         6,252  
       
Commitments and contingencies       
Equity      
Nasdaq stockholders' equity:      
Common stock     2         2  
Additional paid-in capital     3,046         3,011  
Common stock in treasury, at cost     (169 )       (111 )
Accumulated other comprehensive loss     (882 )       (864 )
Retained earnings     3,757         3,571  
Total equity     5,754         5,609  
Total liabilities and equity $   14,808     $   11,861  
       

 

Nasdaq, Inc.
Reconciliation of U.S. GAAP Net Income, Diluted Earnings Per Share, Operating Income and 
Operating Expenses to Non-GAAP Net Income, Diluted Earnings Per Share, Operating Income, and Operating Expenses
(in millions, except per share amounts)
(unaudited)
             
             
     Three Months Ended 
     September 30,     June 30,     September 30, 
      2016       2016       2015  
             
U.S. GAAP net income attributable to Nasdaq   $   131     $   70     $   138  
             
Non-GAAP adjustments:            
             
Amortization expense of acquired intangible assets (1)       23         19         15  
Merger and strategic initiatives (2)       12         35         4  
Restructuring charges (3)       -          33         8  
Sublease loss reserve (4)       -          (2 )       -   
Insurance recovery (5)       -          -          (5 )
Total non-GAAP adjustments       35         85         22  
             
Non-GAAP adjustment to the income tax provision (6)       (12 )       (2 )       (9 )
Total non-GAAP adjustments, net of tax       23         83         13  
             
Non-GAAP net income attributable to Nasdaq   $   154     $   153     $   151  
             
             
U.S. GAAP diluted earnings per share   $   0.77     $   0.42     $   0.80  
Total adjustments from non-GAAP net income above       0.14         0.49         0.08  
             
Non-GAAP diluted earnings per share   $   0.91     $   0.91     $   0.88  
             
(1) Refer to the non-GAAP information section of the earnings release for further discussion of why we consider amortization expense of acquired intangible assets to be a non-GAAP adjustment. 
 
(2)  For the three months ended September 30, 2016 and June 30, 2016, merger and strategic initiatives expense primarily related to our acquisition of ISE.  For the three months ended September 30, 2015, merger and strategic initiatives expense primarily related to certain strategic initiatives and our acquisition of Dorsey, Wright & Associates, LLC.  Refer to the non-GAAP information section of the earnings release for further discussion on why we consider merger and strategic initiatives expense  to be a non-GAAP adjustment. 
 
(3) During the first quarter of 2015, we performed a comprehensive review of our processes, businesses and systems in a company-wide effort to improve performance, cut costs, and reduce spending. In June 2016, we completed our 2015 restructuring plan. For the three months ended June 30, 2016, restructuring charges primarily related to severance costs, asset impairment charges and other charges. For the three months ended September 30, 2015, restructuring charges primarily related to facility-related costs associated with the consolidation of leased facilities, severance costs and other charges. Restructuring charges are recorded on restructuring plans that have been committed to by management and are, in part, based upon management’s best estimates of future events. Changes to the estimates may require future adjustments to the restructuring liabilities. Refer to the non-GAAP information section of the earnings release for further discussion of why we consider restructuring charges to be a non-GAAP adjustment.
 
(4) The credit of $2 million pertains to the release of a previously recorded sublease loss reserve due to the early exit of a facility.
 
(5) In March 2015, we established a loss reserve of $31 million for litigation arising from the Facebook IPO in May 2012, which was recorded in general, administrative and other expense.  The reserve was intended to cover the estimated amount of a settlement of class-action litigation initiated on behalf of investors in Facebook common stock on the date of its IPO.  The reserve also covered the cost of re-opening Nasdaq's voluntary accommodation program to allow any Nasdaq member that did not file for compensation in 2013 to submit a claim during the second quarter of 2015, subject to the conditions and limitations that were applicable to claims filed in 2013.  The re-opened accommodation program is now closed.  The insurance recovery recognized during the three months ended September 30, 2015 primarily represented amounts reimbursed by applicable insurance coverage. 
 
(6) Includes the tax impact of each non-GAAP adjustment. In addition, in June 2016 we recorded a $27 million tax expense due to an unfavorable tax ruling received during the three months ended June 30, 2016, the impact of which related to prior periods.
 


Nasdaq, Inc.
Reconciliation of U.S. GAAP Net Income, Diluted Earnings Per Share, Operating Income and 
Operating Expenses to Non-GAAP Net Income, Diluted Earnings Per Share, Operating Income, and Operating Expenses
(in millions)
(unaudited)
             
             
     Three Months Ended 
     September 30,     June 30,     September 30, 
      2016       2016       2015  
             
U.S. GAAP operating income   $   233     $   174     $   231  
             
Non-GAAP adjustments:            
             
Amortization expense of acquired intangible assets (1)       23         19         15  
Merger and strategic initiatives (2)       12         35         4  
Restructuring charges (3)       -          33         8  
Sublease loss reserve (4)       -          (2 )       -   
Insurance recovery (5)       -          -          (5 )
Total non-GAAP adjustments        35         85         22  
             
Non-GAAP operating income   $   268     $   259     $   253  
             
             
Revenues less transaction-based expenses    $   585     $   559     $   529  
             
U.S. GAAP Operating margin (6)     40 %     31 %     44 %
             
Non-GAAP operating margin (7)     46 %     46 %     48 %
             
             
(1) Refer to the  non-GAAP information section of the earnings release for further discussion of why we consider amortization expense of acquired intangible assets to be a non-GAAP adjustment. 
 
(2)  For the three months ended September 30, 2016 and June 30, 2016, merger and strategic initiatives expense primarily related to our acquisition of ISE.  For the three months ended September 30, 2015, merger and strategic initiatives expense primarily related to certain strategic initiatives and our acquisition of Dorsey, Wright & Associates, LLC.  Refer to the non-GAAP information section of the earnings release for further discussion on why we consider merger and strategic initiatives expense to be a non-GAAP adjustment. 
 
(3) During the first quarter of 2015, we performed a comprehensive review of our processes, businesses and systems in a company-wide effort to improve performance, cut costs, and reduce spending. In June 2016, we completed our 2015 restructuring plan. For the three months ended June 30, 2016, restructuring charges primarily related to severance costs, asset impairment charges and other charges. For the three months ended September 30, 2015, restructuring charges primarily related to facility-related costs associated with the consolidation of leased facilities, severance costs and other charges. Restructuring charges are recorded on restructuring plans that have been committed to by management and are, in part, based upon management’s best estimates of future events. Changes to the estimates may require future adjustments to the restructuring liabilities. Refer to the non-GAAP information section of the earnings release for further discussion of why we consider restructuring charges to be a non-GAAP adjustment.
 
(4)  The credit of $2 million pertains to the release of a previously recorded sublease loss reserve due to the early exit of a facility.
 
(5) In March 2015, we established a loss reserve of $31 million for litigation arising from the Facebook IPO in May 2012, which was recorded in general, administrative and other expense.  The reserve was intended to cover the estimated amount of a settlement of class-action litigation initiated on behalf of investors in Facebook common stock on the date of its IPO.  The reserve also covered the cost of re-opening Nasdaq's voluntary accommodation program to allow any Nasdaq member that did not file for compensation in 2013 to submit a claim during the second quarter of 2015, subject to the conditions and limitations that were applicable to claims filed in 2013.  The re-opened accommodation program is now closed.  The insurance recovery recognized during the three months ended September 30, 2015 primarily represented amounts reimbursed by applicable insurance coverage. 
 
(6) U.S. GAAP operating margin equals U.S. GAAP operating income divided by total revenues less transaction-based expenses.
 
(7) Non-GAAP operating margin equals non-GAAP operating income divided by total revenues less transaction-based expenses.
 


Nasdaq, Inc.
Reconciliation of U.S. GAAP Net Income, Diluted Earnings Per Share, Operating Income and 
Operating Expenses to Non-GAAP Net Income, Diluted Earnings Per Share, Operating Income, and Operating Expenses
(in millions)
(unaudited)
             
             
     Three Months Ended 
     September 30,     June 30,     September 30, 
      2016       2016       2015  
             
U.S. GAAP operating expenses   $   352     $   385     $   298  
             
Non-GAAP adjustments:            
             
Amortization expense of acquired intangible assets (1)       (23 )       (19 )       (15 )
Merger and strategic initiatives (2)       (12 )       (35 )       (4 )
Restructuring charges (3)       -          (33 )       (8 )
Sublease loss reserve (4)       -          2         -   
Insurance recovery (5)       -          -          5  
Total non-GAAP adjustments       (35 )       (85 )       (22 )
             
Non-GAAP operating expenses   $   317     $   300     $   276  
             
(1) Refer to the  non-GAAP information section of the earnings release for further discussion of why we consider amortization expense of acquired intangible assets to be a non-GAAP adjustment. 
 
(2)  For the three months ended September 30, 2016 and June 30, 2016, merger and strategic initiatives expense primarily related to our acquisition of ISE.  For the three months ended September 30, 2015, merger and strategic initiatives expense primarily related to certain strategic initiatives and our acquisition of Dorsey, Wright & Associates, LLC.  Refer to the non-GAAP information section of the earnings release for further discussion on why we consider merger and strategic initiatives expense to be a non-GAAP adjustment. 
 
(3) During the first quarter of 2015, we performed a comprehensive review of our processes, businesses and systems in a company-wide effort to improve performance, cut costs, and reduce spending. In June 2016, we completed our 2015 restructuring plan. For the three months ended June 30, 2016, restructuring charges primarily related to severance costs, asset impairment charges and other charges. For the three months ended September 30, 2015, restructuring charges primarily related to facility-related costs associated with the consolidation of leased facilities, severance costs and other charges. Restructuring charges are recorded on restructuring plans that have been committed to by management and are, in part, based upon management’s best estimates of future events. Changes to the estimates may require future adjustments to the restructuring liabilities. Refer to the non-GAAP information section of the earnings release for further discussion of why we consider restructuring charges to be a non-GAAP adjustment.
 
(4)  The credit of $2 million pertains to the release of a previously recorded sublease loss reserve due to the early exit of a facility.
 
(5) In March 2015, we established a loss reserve of $31 million for litigation arising from the Facebook IPO in May 2012, which was recorded in general, administrative and other expense.  The reserve was intended to cover the estimated amount of a settlement of class-action litigation initiated on behalf of investors in Facebook common stock on the date of its IPO.  The reserve also covered the cost of re-opening Nasdaq's voluntary accommodation program to allow any Nasdaq member that did not file for compensation in 2013 to submit a claim during the second quarter of 2015, subject to the conditions and limitations that were applicable to claims filed in 2013.  The re-opened accommodation program is now closed.  The insurance recovery recognized during the three months ended September 30, 2015 primarily represented amounts reimbursed by applicable insurance coverage.
 

 

Nasdaq, Inc.
Quarterly Key Drivers Detail
(unaudited)
           
  Three Months Ended
   September 30,     June 30,     September 30, 
    2016       2016       2015  
Market Services          
Equity Derivative Trading and Clearing          
U.S. Equity Options          
Total industry average daily volume (in millions)   13.8       14.1       16.0  
Nasdaq PHLX Options Market matched market share   16.0 %     16.2 %     15.8 %
The NASDAQ Options Market matched market share   8.5 %     7.1 %     6.7 %
Nasdaq BX Options Market matched market share   0.8 %     1.0 %     0.9 %
Nasdaq ISE Options Market matched market share(1)   12.0 %     0.2 %     -  
Nasdaq GMNI Options Market matched market share(1)   1.8 %     0.0 %     -  
Nasdaq MCRY Options Market matched market share(1)   0.2 %     0.0 %     -  
Total matched market share executed on Nasdaq's exchanges   39.3 %     24.5 %     23.4 %
           
Nasdaq Nordic and Nasdaq Baltic options and futures          
Total average daily volume options and futures contracts(2)   291,410       439,520       335,361  
           
Cash Equity Trading          
Total U.S.-listed securities          
Total industry average daily share volume (in billions)     6.59         7.25         7.32  
Matched share volume (in billions)     71.0         80.6         88.2  
Matched market share executed on NASDAQ   13.4 %     14.0 %     15.7 %
Matched market share executed on Nasdaq BX   2.6 %     2.3 %     2.1 %
Matched market share executed on Nasdaq PSX   0.9 %     1.1 %     1.0 %
Total matched market share executed on Nasdaq's exchanges   16.9 %     17.4 %     18.8 %
Market share reported to the FINRA/NASDAQ Trade Reporting Facility   33.5 %     33.0 %     31.0 %
Total market share(3)   50.4 %     50.4 %     49.8 %
           
Nasdaq Nordic and Nasdaq Baltic securities          
Average daily number of equity trades   394,181       447,231       405,614  
Total average daily value of shares traded (in billions) $   4.4     $   5.2     $   4.4  
Total market share executed on Nasdaq's exchanges   62.4 %     63.7 %     69.7 %
           
Fixed Income and Commodities Trading and Clearing          
Total U.S. Fixed Income          
U.S. fixed income notional trading volume (in billions)  $   4,816     $   5,255     $   7,397  
           
Nasdaq Nordic and Nasdaq Baltic fixed income          
Total average daily volume fixed income contracts     73,422         91,107         116,563  
           
Nasdaq Commodities          
Power contracts cleared (TWh)(4)   321       455       385  
           
Listing Services          
Initial public offerings          
NASDAQ   31       25       35  
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic   5       25       7  
           
New listings          
NASDAQ(5)   79       73       80  
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic(6)   10       33       9  
           
Number of listed companies          
NASDAQ(7)     2,872         2,868         2,850  
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic(8)     875         873         835  
           
Information Services          
Number of licensed exchange traded products   289       267       210  
ETP assets under management (AUM) tracking Nasdaq indexes (in billions)(9) $   118     $   108     $   103  
           
Technology Solutions          
Market Technology          
Order intake (in millions)(10) $   49     $   69     $   83  
Total order value (in millions)(11) $   738     $   769     $   738  
           
(1) For the three months ended June 30, 2016, Nasdaq ISE Options Market, Nasdaq GMNI Options Market, and Nasdaq MCRY Options Market matched market share represents trading volume which commenced on June 30, 2016.
(2) Includes Finnish option contracts traded on EUREX Group.
(3) Includes transactions executed on NASDAQ's, Nasdaq BX's and Nasdaq PSX's systems plus trades reported through the Financial Industry Regulatory Authority/NASDAQ Trade Reporting Facility.
(4) Transactions executed on Nasdaq Commodities or OTC and reported for clearing to Nasdaq Commodities measured by Terawatt hours (TWh).
(5) New listings include IPOs, including those completed on a best efforts basis, issuers that switched from other listing venues, closed-end funds and separately listed exchange traded products, or ETPs.
(6) New listings include IPOs and represent companies listed on the Nasdaq Nordic and Nasdaq Baltic exchanges and companies on the alternative markets of Nasdaq First North.
(7) Number of listed companies for NASDAQ at period end, including separately listed ETPs.
(8) Represents companies listed on the Nasdaq Nordic and Nasdaq Baltic exchanges and companies on the alternative markets of Nasdaq First North at period end.
(9) Represents AUM in licensed ETPs.
(10) Total contract value of orders signed during the period. 
(11) Represents total contract value of orders signed that are yet to be recognized as revenue. 


MEDIA RELATIONS CONTACT:
Allan Schoenberg
+1.212.231.5534
allan.schoenberg@nasdaq.com

INVESTOR RELATIONS CONTACT:
Ed Ditmire, CFA
+1.212.401.8737
ed.ditmire@nasdaq.com

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