Good day and thank you for standing by. Welcome to Nasdaq Third Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker, Ato Garrett, Senior Vice President, Investor Relations at Nasdaq. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss Nasdaq's Third Quarter 2024 Financial Results. On the line are Adena Friedman, our Chair and Chief Executive Officer; Sarah Youngwood, our Chief Financial Officer; and other members of the management team. After prepared remarks, we will open the line for Q&A. The press release and earnings presentation accompanying this call can be found on our Investor Relations website. I would like to remind you that we will be making forward-looking statements on this call that involve risks. A summary of these risks is contained in our press release and a more complete description in our annual report on Form 10-K. We will discuss our financial performance using pro forma financial results and year-over-year growth rates as if we owned AxiomSL and Calypso in all comparable periods, recognized revenue ratably for AxiomSL on-prem contracts for all 2023 and 2024, excluded the previously announced one-time revenue adjustment recognized in the third quarter and also excluded the impact of FX except for AxiomSL and Calypso, which are not yet calculated on an organic basis. References to organic growth exclude the impact of FX and acquisitions. Reconciliations of US GAAP to non-GAAP results can be found in our press release as well as in the filing located in the financial section of our Investor Relations website at ir.nasdaq.com. I will now turn the call over to Adena.

Thank you, Ato, and good morning, everyone. Thank you for joining us. On the call this morning, I'll provide some perspective on the external environment, discuss our quarterly performance and review our progress against our strategic priorities. I will then hand the call over to Sarah to walk through the financial results in more detail. Beginning with the macroeconomic environment, internationally, major Central Banks have pivoted to lowering rates over the past several months to combat slowing economic growth. Notably, the European Central Bank has cut rates three times this year, which coupled with a solid labor market has helped the European economy stabilize in recent months. The US continues to show overall strength supported by the Fed's September rate cut and more recent services and labor data. Looking ahead, while the global macro environment remains fluid, which could lead to a range of potential outcomes, the US is currently trending toward a soft landing with additional rate cuts expected in the coming quarters. The current positive economic trends and outlook provide constructive potential for sustained trading activity across our markets as well as a rebound in the global IPO environment in 2025. As financial institutions continue to operate in a dynamic environment, we see consistent demand for our mission-critical technology. Against this economic backdrop, Nasdaq remains well positioned to deliver sustainable and durable growth across our diversified platforms. Now let me turn to our financial results. We delivered a strong quarter with 10% year-over-year growth in both net revenues and solutions revenue, marking our fourth consecutive quarter of double-digit solutions growth. Total annualized recurring revenue or ARR grew 8% to $2.7 billion. Expenses increased 5% in the quarter, reflecting investment in the business, partially offset by synergy achievement, while our operating margin increased to 54%. We continue to make progress on the successful integration of AxiomSL and Calypso, which has enabled us to action over 80% of our net expense synergies target and our strong free cash flow generation has allowed us to continue to delever, resulting in a 3.8 times leverage ratio in the quarter. Turning now to our business highlights, starting with Capital Access Platforms. The division delivered 2% ARR growth and 9% revenue growth fueled by another quarter of strong index performance. Beginning with data and listings, we continued to see modest growth in data revenue offset by a decline in listings revenue due to lower listings activity and prior year de-listings. In the quarter, we experienced a modest uptick in listings activity in the US. We welcomed 33 operating companies, contributing to a 75% win rate year-to-date through September of Nasdaq eligible operating company listings. Additionally, we have listed 5 of the top 10 largest IPOs in the first three quarters of the year, including the year's largest listing to date, Lineage. We also celebrated a major milestone as we recorded our 500th listing switch to Nasdaq from our primary listing competitor, cumulatively representing approximately $3 trillion of market value. This year alone, we've attracted 16 switches, including prominent government technology contractor, SAIC, and legendary food manufacturer, Campbell's, reinforcing Nasdaq's role as the premier venue for listings in the US. In data, we benefited from new enterprise license sales, higher demand from heightened market activity and continued strength in international markets. Across Workflow and Insights, we drove moderate growth with strength in analytics offset by Corporate Solutions. In Corporate Solutions, the broader operating environment, including sales cycles has not materially changed. We remain focused on client retention and product enhancements to ensure Nasdaq is well positioned when the IPO flywheel resumes, as evidenced by the previously announced introduction of new AI features across our suite of solutions. Within analytics, we've seen increased activity and demand for our data and workflow solutions with the asset owner and asset manager communities. Asset owners are using more manager research products and new tools such as the recently launched Peer Benchmarking Solution, while asset managers continue to seek unique insights through our data and services. Lastly, our Index business delivered another exceptional quarter of growth with $62 billion in net inflows in the trailing 12 month period, including $14 billion in the third quarter, resulting in $575 billion in average AUM in the quarter. This reflects the broad strength of our Index franchise, while we continue to drive innovation and expansion with 35 new product launches this quarter. Moving to Financial Technology. ARR growth across the division was 14%, including 24% in Financial Crime Management Technology, 15% in the combined AxiomSL and Calypso solutions and 11% in combined Market Technology and Trade Management Services. Overall, we signed 39 new clients, 110 upsells and 2 cross sells. I would like to highlight our progress in Latin America, where we continued to increase our footprint in the region through an enhanced partnership with Nubank, which is now using AxiomSL to support its regulatory reporting responsibilities in Colombia. We also signed a significant expansion of our technology partnership with Argentina's leading stock exchange group, BYMA, which is an existing CSD client and we signed them to modernize its clearing technology through a cloud delivery of our next-generation clearing solution. Overall, we see constructive growth across our solutions and look forward to capitalizing on this momentum to deliver sustained profitable growth to our shareholders.

Thank you, Adena, and good morning, everyone. We're proud to share our fourth consecutive quarter of double-digit solutions revenue growth and we are also making excellent progress in integrating AxiomSL and Calypso. Notably, we have actioned over 80% of net expense synergies to-date. Deleveraging continues and is now down to 3.8 times and we're seeing strong traction with clients with over 10% of our fintech pipeline coming from cross sells. Let's turn to our third quarter results. We reported net revenue of $1.2 billion up 10% with solutions revenue of $904 million also up 10%. Operating expense was $543 million up 5%, resulting in an operating margin of 54% and an EBITDA margin of 56%, each up two percentage points. Overall, this resulted in net income of $429 million and diluted EPS of $0.74. Slide 11 shows the drivers of our 10% net revenue growth for the quarter. We generated 7.5 percentage points of Alpha growth on a net basis, driven by new and existing clients, product innovation as well as market share and capture. Overall, Beta factors contributed 2.5 percentage points of growth this quarter, driven by higher valuations in Nasdaq indexes and higher overall volumes in Market Services, offset primarily by delisting and downgrade. As shown on slide 12, we had ARR growth of 8%, with SaaS revenue growth of 17%. Notably, SaaS as a percent of ARR increased three percentage points to 37%.

Thank you. Our first question comes from Owen Lau from Oppenheimer. Please go ahead.

Hi, good morning, and thank you for taking my question. So your financial crime management tech was pretty strong growing at 20% year-over-year, but it was below the medium term outlook, which is mid-20%. You said mainly because of the top comp and timing of deliveries or there is something else in there that we should be aware of? And how should we think about the near-term outlook for Verafin? Thanks.

Great. Thanks, Owen. Yes, as we mentioned, the significant difference is really related to the professional services. As we move up market into the Tier 1s and Tier 2s, we're going to have more of an implementation element to those clients. And so there could be more revenue variability as we look at kind of both the timing of those implementations when they move from implementation to ARR and also the amount of implementation revenue that we might have in one quarter, one year versus the next. So in this particular quarter, we had two significant implementations well underway last year third quarter that drove up our professional services fees, and now we've completed those implementations and moved them to ARR, but we just didn't have as much implementation revenue this quarter. So it's really going to have there is going to be some of that variability going forward as we continue to scale our upmarket business and that's something that we'll make sure that we provide disclosures on like we did today. In terms of our overall confidence in the business, we remain confident in our mid-20% medium term revenue outlook for financial crime management technology. We're very excited by the customer pipeline for the SMB space as well as demand for our solution among the Tier 1 and Tier 2 banks. With all of the opportunities ahead of us, we expect to continue strong growth over the medium term. And as we zoom in, as I mentioned, there are some revenue dynamics and moving up market that could create some variability, but we feel extremely excited about everything that's happening in our business and continued momentum there.

Sounds great. Thanks a lot.

Thank you. And I show our next question comes from the line of Craig Siegenthaler from Bank of America. Please go ahead.

Good morning, Adena and Sarah. I hope everyone's doing well. I have a follow-up on the Verafin question. First, I saw you signed up another Tier 1 client in the quarter. Was that the same client that you announced in the last earnings call in July? I think you cross sold it from Axiom or is this actually a new one? And then will this one start with payment fraud, because I think that's how most of the Tier 1s start with? And just the final one here is, with your existing Tier 1 wins including Citi, have you been able to upsell them after the initial signing or is it too early?

Yes, great. Thanks, Craig. Yes, it is the same client and you are right that they're starting with payment fraud. And we are actively working with several of our Tier 1 and Tier 2 clients that we have sold to upsell them or to continue to expand our presence with them and they're doing active evaluations of additional modules that we have. We've already upsold one of our Tier 2 clients, but we're actively working with them. I think they've been really, I have to say, I think their clients have been really happy with the results of the implementations and that's obviously giving us nice tailwinds to discuss further enhancements or extensions of what they take from us. But of course, those sales cycles are not instantaneous either. We are in the process of working with them to continue to show all the different strengths that we have, but it is a very, very active conversation across several of our clients.

Thank you.

Thank you. And I show our next question comes from the line of Michael Cyprys from Morgan Stanley. Please go ahead.

Great. Thanks so much. Good morning. I was just hoping you could elaborate a bit on the cross sells campaigns, particularly with Axiom and Calypso, how that's progressing. It seems like you're about to embark on some additional campaigns in the fourth quarter. Maybe you can elaborate on what your plans are for that and what success might look like? Thanks.

Sure. Thanks. Yes, so far year-to-date we've had 7 cross sells, but that also does include Verafin sales to AxiomSL or Calypso clients, but across the Fintech division, we have 7 cross sells. The campaigns are working well. Obviously, it takes time for those campaigns to turn into sales, but we feel very good about what we've been able to see in terms of bringing more Calypso capabilities to our market tech clients and vice versa, as well as bringing AxiomSL capabilities to our Calypso clients. The two new campaigns that we're launching as we go through the rest of this year, one is we have a product called the Nasdaq Risk Platform, which is a real-time risk management platform for exchange-traded products and we are cross selling that to Calypso clients. We think that's going to be very interesting because obviously, as you know, Calypso really focuses on our OTC instruments and then we have this great real-time risk management platform for exchange-traded products. So it's a natural cross sell and we saw that as part of the deal. We knew that was an opportunity and now we're launching a formal campaign around that. The second one is AxiomSL global shareholder disclosures for global broker dealers. There are new rules and requirements coming out on shareholder disclosures to the broker-dealer community, which is both our market services clients and Calypso clients. We're definitely working on a campaign specifically on that. Those are the types of things that we're focused on as we expand our cross sell campaigns.

Great. Thanks so much.

Thank you. And I show our next question comes from the line of Ashish Sabadra from RBC Capital Markets. Please go ahead.

Good morning, everyone. This is [indiscernible] representing Ashish Sabadra. Thank you for taking our question. I wanted to quickly revisit the earlier comments regarding the timeline for onboarding new clients, specifically SMBs, Tier 1, and Tier 2. Is there a specific ramp-up period we should anticipate? Is it faster for new clients compared to cross-sells, or is the time frame relatively similar for both? Additionally, could you provide any insights into the current IPO market and if there are any election-related challenges that might affect clients? Thank you.

Okay, great. Sure. On timing of implementation, as you can imagine, as you go from the smaller banks that we serve to the larger banks we serve, the implementations become more complex and therefore, take more time. As we enter this year, in the small to medium bank cohort, we have signed more of that medium bank size company. So we've had, that's why, as Sarah mentioned, we had a 30% increase in the ACV for the clients we've sold this year in the SMB space because they've been more medium-sized clients. Those implementations do tend to take longer than a small client. We would say anywhere from 6 to 12 months for that medium client, really depends on the client and the complexity and also the completeness of what they're implementing day one. With the large clients, like the Tier 1 to Tier 2, it could be anywhere also from 6 to 12 months, but more like 9 to 12 months for implementation so far at least. If you're upselling and going to a second capability because we've already built a lot of the integrations with their data lakes internally and a lot of the systems that they have, it can go quicker, but still, you're dealing with a large institution. You have a lot of program management and project management. We don't have a lot of experience yet on upsell there. We hope that could be a shorter time to implementation, but it still is going to be fairly long. And that's why professional services fees becomes more of an element of our revenue as you're dealing with the medium banks and the larger banks. With regard to the IPO market, we are seeing some green shoots. We had 33 IPOs in the quarter; we're proud to have a 75% win rate year-to-date. We have a lot of companies that are in our pipeline. It's been very active actually talking to those clients, pitching the great benefits of Nasdaq. There's a lot of pent-up energy and demand to want to come to market. I think with a better rate environment, if we see the Fed moderating the rates and get it more in line with inflation today, we could have a good robust economic environment. I think we won't see much activity going into the rest of this year just because of other noise and even into the first quarter, which is usually not very active. We're aiming towards seeing more momentum in Q2 and beyond, and we're hopeful that it could be a much more active year next year.

Great. Thank you very much.

Thank you. And I show our next question comes from the line of Patrick Moley from Piper Sandler. Please go ahead.

Yes, good morning. Thanks for taking the question. I just have a follow-up on the cross sell campaigns. The new campaigns that you're running in the fourth quarter from a revenue standpoint, how large is the opportunity compared to the campaigns that you're currently running? And then in the scope of just the overall cross sell campaigns that you expect roll out to get to that $100 million of cross sell revenue target by the end of 2027. Where do you think we are in that journey? Thanks.

Yes, great. Well, we don't disclose specific campaign opportunities, but they all contribute to the overall growth expectations for solutions, for Fintech, and every new client counts. We're very early in our journey there. I just want to point out that 2024 has been a significant integration year. We've brought teams together and operations together, putting all systems in place. It's been a building year, and yet, even in a building year, we're delivering across Fintech. I'm proud of the team for that. We have seven cross sells so far. Over 10% of our pipeline today is cross sell opportunities. This isn't going to be a linear path to at least the $100 million. We expect that momentum will build over the next couple of years. As you know, these mission-critical technology sales cycles are not short. Most deals take about 9 to 12 months to get signed and started in terms of implementation.

Thank you.

And I show our next question comes from the line of Kyle Voigt from KBW. Please go ahead.

Hi. Good morning. Just want to focus in a bit more on the international opportunity for Axiom. You noted the first clients in certain geographies in India, the Philippines, you also noted success in Colombia and Latin America. Can you help us frame the international opportunity here when you look at your market share or penetration rate in more developed markets? And then, therefore, how meaningful some of these new international markets could be? Also, could you give us some more color as to whether you're displacing any competitors in these international markets or if it's really just displacing the in-house regulatory reporting functionality?

Sure. AxiomSL is global today. There are certain geographies where AxiomSL is really, really strong and certain geographies where Nasdaq is bringing them into geographies where we're strong. The Philippines is one example where we are the provider of technology to the exchange there. We have good relationships with the financial community there and with the central regulators. It gives us a great opportunity to engage the banks within that space to help them manage their regulatory needs. It might be that a bank in the Philippines was an upsell because they were already using AxiomSL for international reporting but weren't using it for domestic reporting. We've connected with them for that as we build new relationships in these geographies. Latin America has been an area where Calypso and AxiomSL have been strong. We have built a great presence in Latin America. We have over 10 market operators and about 50 bank and broker-dealer clients using our technology. We do not give an international growth rate because everything we do is kind of global in Fintech, but we'll consider how we can provide you disclosures there.

Thanks, Adena.

Thank you. And I show our next question comes from the line of Michael Cho from JPMorgan. Please go ahead.

Hi. Good morning. Thanks for taking my question here. I just wanted to touch on pricing for a second. We can start on Verafin, but trying to get an update more broadly. There is a rollout of upgrades like entity research copilot or the new AI features in Corporate Solutions help with pricing from existing clients. And when we think about Axiom and Calypso, are there areas where you see broader upgrade opportunities ahead maybe in the context of pricing for existing clients? Thank you.

Sure. Yes. Thanks. Well, just before we go into specific features, the way that we work with clients and pricing is a little different product by product within Fintech, just based on the way we work with them. In financial crime management technology, we generally have a three-year contract terms. Upon renewal, we work with the bank to look at how much they've grown, how much they're using our service, how much value we're providing to them. With regard to the entity research copilot, we are not explicitly charging for that. But as we work with them and to see, we have half the clients, by the way, actually using it. So we rolled it out to 2,000 banks, and we're seeing half of the clients engaging that capability. It's receiving fantastic feedback from clients in terms of efficiency gains. That would be part of the conversation on the renewal and the upsell that we consider in terms of pricing. With Corporate Solutions, we have actually launched a new paid module within IR Insight that allows companies to compare their sustainability disclosures to their peers. Those are the types of things where we might charge explicitly for, but we see that as a way to enhance retention and also get new sales.

That's great. Thanks for all the color.

Thank you. And I show our next question comes from the line of Dan Fannon from Jefferies. Please go ahead.

Thanks. Good morning. I wanted to follow up on some of the comments on the Market Tech business. It sounds like momentum is building. You said professional services should build into next year, but you still have the tough comp going into Q4. Hoping to just contextualize that a bit more in terms of how we think about 4Q revenues and the growth into next year, putting that momentum versus the roll-off of contracts and professional fees that are still rolling through the system.

Yes, sure. It's important to note we had one client where we got to a peak level of implementation last year in 2023, resulting in $27 million of professional services fees. This year, won't present that tough year-over-year comp starting in the fourth quarter. As you pointed out, we've had a lot of sales this year with several new clients and 13 upsells in the quarter. We have great momentum here. Clients are really focused on modernizing their markets and understanding why a cloud-delivered or cloud-ready solution will be important for their future. So it's exciting to see it's starting to turn into contracts and sales. The strongest uptake we've seen in our next-gen products has been in our clearing solution and our trading solution. We're optimistic as we move forward.

Great. Thank you.

Thank you. And I show our next question comes from the line of Alex Blostein from Goldman Sachs. Please go ahead.

Hey, good morning, everybody. Thanks for the question. I was hoping to zoom out on Adenza for a second and just kind of talk about the near-term outlook you guys have for this business. There's been a few puts and takes with the accounting change earlier in the year that is meant to smooth revenue growth out a little bit. As you look out into 2025, it sounds like the sales momentum is progressing nicely, and you're happy with the integration. Can you talk a little bit about 2025 revenue growth expectations for both of those businesses, AxiomSL and Calypso? Thanks.

Sure. We've given a medium-term outlook on ARR and overall revenue growth for the Adenza businesses, kind of mid-teens ARR growth and low to mid-teens revenue growth. Everything we've seen is consistent with that so far in terms of how we've been progressing with the business. We're comfortable with the medium-term outlook based on the momentum we've noted.

Thank you. And I show our next question comes from the line of Benjamin Budish from Barclays. Please go ahead.

Apologies, I had you on mute there. Just wanted to see if I could follow up on Alex's question there. I know for Axiom, Q4 tends to be the biggest booking quarter, and next year is expected to be a bigger upgrade cycle. I'm wondering if there's any more color you can provide there? Can you provide more explicit guidance on what the revenue growth looks like? Maybe what is sort of like a reasonable expectation? What should we sort of see in a big upgrade cycle here? Should we see more professional services or more of an ARR acceleration? How should we be thinking about those different factors? Thank you.

Yes. Demand in general is strong and active across AxiomSL. We have good sales this year, and there are opportunities for professional services fees as we gain more sales contracts. Demand remains strong for both ARR and revenue as we evaluate performance within Nasdaq. We feel that the business is doing well and progressing with positive signs for the market.

Thank you. And I show our next question comes from the line of Bill Katz from TD Cowen. Please go ahead.

Great. Thank you very much for taking the questions. Maybe if I could sneak in a two parter. Adena, for you, I'm curious about your perspective on the recently passed Tick Rule by the SEC and what might be the implications either intended or unintended for the platform? And then, Sarah, I'm just curious if you covered this in your prepared remarks; it's been a busy morning. You gave a relatively wide implicit range for fourth quarter non-GAAP adjusted expenses. I was wondering what would frame the high end versus the low end? Thank you very much.

Sure. The tick size rule has been an interesting process with the SEC. We see the rule as having some benefits and also some concerns. From a financial performance perspective, we do not anticipate that the rule will have any material impact on our revenues in our Market Services business. When evaluating such a rule, we focus on two key parameters: how does it improve the markets for investors, and does it tighten the national best bid offer? If we unpack the contents of the rule, they are narrowing the tick size to $0.005 from $0.01 for smaller stocks in our market, which we think is good for market price discovery. The second component is having odd lots subject to price protection, which is small but also positive for markets. However, we are focused on access fees. We recommended that they look at proportionate changes to access fees. They ultimately took down access fees by two-thirds, which makes it harder for markets to incentivize lit orders. If we are unable to incentivize market makers to put their capital into lit markets, it may widen spreads, which we see as detrimental for investors. We're assessing and evaluating this to determine our next steps.

In terms of the expenses piece, first of all, we did tighten it. We're now at the range around the same midpoint. If you look at what could make it go lower versus higher, there are revenue-related investments, and there's always variability that can happen in the fourth quarter as it's essential for revenue gathering. The next piece could be the timing of marketing investments.

Thank you. And I show our next question comes from the line of Simon Clinch from Redburn Atlantic. Please go ahead.

Hi, Adena. Hi, Sarah. Thanks for taking my question. Just wondered if you could quickly give a sense or talk to the renewal environment that we're in right now. It sounds like it's pretty good, but you also referenced the push out of a renewal, I think, for Calypso by potentially up to two quarters. What does that actually mean in terms of the renewal environment?

Sure. That's a very specific situation. It's one long-standing client. They're very pleased with the platform and have actually recently taken an upsell in Calypso. It really had to do with how they wanted to structure the timing against their renewal date. They decided to make that decision a little closer to their renewal date. There's nothing to read into that situation; it's very specific. In general, the renewal environment is strong. We provide mission-critical technologies and have very high retention rates across our Fintech solutions.

Thank you. And I'm showing the last question in the queue comes from Brian Bedell from Deutsche Bank. Please go ahead.

Okay. Thanks very much for squeezing me in. Just on the index options business. Can you just comment on what you're seeing as the revenue contribution from that coming into 2025? And to what extent are you marketing this to retail like the online broker platforms?

It has been a nice grower for us. It's still a small contributor to revenue. We love the growth and momentum, but it's still small in the overall index options revenue. We are indeed marketing to retail platforms, as you mentioned, and getting our index options into those major retail platforms is a priority. We see significant demand for our data internationally as well, with flow coming from international broker dealers. We see that as a great opportunity to help them develop strategies and hedging. Inclusion in ETFs as index options be an overlay on ETFs could be another growth area for us. In conclusion, Nasdaq continues to drive growth across our business. As we execute on our One Nasdaq strategy, we are confident that we'll drive additional growth and value for our clients, shareholders, and employees. Thank you for joining and have a great day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.