Conference Transcript - NDAQ 2026-06-03

Jeffrey Schmidt, Analyst — William Blair

Good morning, everyone. Why don't we go ahead and get started here? My name's Jeff Schmidt. I cover wealth management and capital market stocks here at William Blair. I'd like to introduce NASDAQ, which has really transitioned into more of a technology company through the years with a much kind of better growth profile. We're pleased to have Adina Friedman here, who's the chair and CEO, to discuss the business. And, of course, before we begin, please go to our website, WilliamBlair.com, for a full list of disclosures. But with that, I'll open up to Adina.

Adena Friedman, CEO

Hey, well, good morning, everyone. All right, good morning. All right, we're going to talk a little bit about NASDAQ today. I have a lot of slides, so we're going to fly a little bit, but I'm looking forward to having a great conversation with you this morning. Fortunately, we did have an investor day in February, so a lot of these slides come from the investor day deck. So feel free to peruse the complete presentation that's on our website. But I want to talk a little bit about how we form our strategy and how has that resulted and great results for us and also kind of reposition NASDAQ for the future. So the first thing we do when we develop our strategy and we go through this process every single year is we evaluate what are the trends that are going to define our industry over the next decade. And of course, we don't actually know, but we really do try to look out in time and say, what are those durable trends that are redefining our sector, redefining our clients' experience, and what technology trends are really coming in to redefine the business. And then over time, these are four durable trends that we've been re-underwriting every year that I've been the CEO that really kind of drive and form the basis of our strategy. Data is the new fuel to the industry and the economy. You may know that I ran the data business at NASDAQ for nine years earlier in my career. So data is near and dear to my heart, but also we have used data as a foundation for every decision we've made. The harnessing the power of technology. Technology is an unstoppable force, and it includes that unstoppable force in our industry. And because our industry is so data dependent, it means that technology comes into our industry very, very quickly. We tend to be a leading industry in adopting and adapting to new technologies. and the technologies that we've been focused on very consistently over the last nine years has been the power of cloud, AI, and blockchain. And as we look forward, we also would say that we're doing a lot of research now on what quantum computing and quantum networking can also deliver to the industry. We also then have focused on the connectivity of the financial services, the financial system. While we have, you know, we've been looking at all these technologies that are coming in, the globalization of the clientele, the rise of retail investing from a global perspective. And what we're seeing is that the connectivity and the technology that allows for the capital markets to be more global, more connected than ever, with a broader investor base and more accessible to investors all over the world. That gives rise to new asset classes and new instruments that are coming in, as well as the notion of always-on markets, which I'll talk about. And then lastly, the growing risk and complexity of everything, but certainly in the industry and how our industry processes risk and complexity. How do we help them as a strategic partner in managing that risk and complexity in new ways, leveraging that great technology that's available to us? So we have come to three pillars of our strategy. The first is to architect the world's most modern markets. We leverage technology and we are constantly innovating and our technology to be the best market operator in the world here in the United States across our equities and options markets in the Nordics, where we own and operate almost all the markets in the Nordics. But also we provide technology and we power 130 markets and regulators around the world with our technology. And so therefore, we are really the player and the provider that That's really driving the industry forward and how technology can transform markets. We also are powering the innovation economy. And that, of course, is we are very fortunate to have an incredible group and network of listed companies that come to NASDAQ. And those companies are the greatest innovators of our day, really redefining industry, redefining the economy. But we also we want to make those companies accessible to billions of investors. So we have a large and scaled and growing index business with over $900 billion of assets under management today tied to indexes that are underpinned by our listed companies. And we also provide a whole suite of solutions that allow corporates and investors to connect better together, to make smarter asset allocation decisions through investment, and to build out and manage their IR programs more successfully with our IR services. And then the third pillar is to building trust in the financial system. We believe very much that the pillar, you know, if we're thinking about the three key components of running a successful market and a durable market and a fair market, it's going to be liquidity, transparency, and integrity. So we have really dedicated our time and energy and our technology towards driving that integrity across our markets. But we now also provide surveillance technology, regulatory reporting, and anti-financial crime technology to hundreds or actually thousands of banks all over the world. And we're really proud of the fact that we can be that partner to really help our clients really manage risk and integrity across the financial system. So what has that done to our business? Well, over the last five years, we've gone from $2.9 billion of revenue to $5.2 billion of revenue with a 13% revenue CAGR and a 14% ARR CAGR over that period of time. We've also really recalibrated our division. So more and more of our revenue is coming from more, I would say, stable and steady revenue from our solutions businesses with our trading business at 23% of our overall revenue base. Now, of course, trading has also been a great growth pillar for us, but we have really focused on making sure we have predictable revenue streams to drive our business forward. And as I said, we've had really strong revenue performance, as well as our solutions revenue. That's everything other than our trading revenue has had a 16 percent CAGR. And we've had a free cash flow CAGR of 17 percent. And our EPS CAGR of 11% over five years, but in recent years, in 2025 and in the first quarter of 26, it's surpassed 20% as we've continued to really scale up and scale out our platform. And we're really pleased with the ongoing performance of our business and how we've been able to accelerate growth and overall performance. And one of the great things about our business, it is a cash flow machine. So we delivered $2.2 billion of cash flow in 2025 with a 17% cash flow CAGR. And we have 109% cash flow conversion within the company. So it's a relatively capital-light, high growth, high EPS, and high cash flow business. And a lot of the software suite and software investors today do use this notion of the rule of 40 to evaluate the quality of companies that are in the technology sector. And when we look at NASDAQ in 2025, we were a rule of 70 company. When we also look at it in comparison to the S&P 500, we're one of only 18 companies in the S&P 500 that can say that they're greater than a rule of 60. So we feel really proud of our outstanding financial performance that really is coming on the back of really delivering great things and great capabilities and great returns for our clients. So now let's turn to our business divisions. As I talked about our three key pillars, we're almost organized around those pillars within our divisions. There's a little bit of overlap, but we have market services, which is our trading businesses, capital access platforms, which serves corporates and investors, and then financial technology, which serves banks, brokers, regulators, and exchanges. And we have some powerful flywheels that we have that cut across our divisions to deliver outcomes for our clients, the first of which is our listings franchise and how that really kind of creates a flywheel across our trading and index businesses, as well as then always on markets as we move to modernize markets even further with always on trading and how that's going to deliver new capabilities and growth across, frankly, all parts of our business, including index and our fintech division. And then these mission-critical solutions that we do deliver for our clientele, we did an acquisition in 2023 to support the growth of our fintech solutions. And we committed at that time to have $100 million of cross-sells in terms of cross-sell run rate revenue by the end of 2027. And at our investor day, we did say that we're at $45 million of that $100 million to date. So we're well underway in showing the power of bringing those mission critical solutions together into a powerful platform. So if we turn to our market services division at a glance, we make in 2025, we we delivered one point two billion dollars of revenue and had very strong growth in this business. And you can see over a five year period, it has had a six percent revenue CAGR. But one of the things that we really focus on, it's accelerated in recent years with double-digit growth in 2025 and in the first quarter of 2026. We really focus long and hard on, number one, being the best at what we do. The most deterministic, the lowest latency, the most resilient, the highest capacity, and we deliver that at enormous scale. We also really focus from a business perspective on how we develop long-term relationships with our trading clientele. We want to have, we match market share with capture. We really focus on how are we bringing in sustainable order flow that is really value added to our markets that can be, that can bring in others. It's kind of liquidity begets liquidity notion, but we don't chase share that we don't think is durable. So we really do focus on durable relationships, durable order flow, and driving a capture rate that is best in class in our industry, including having a 70% higher capture rate in our equities business than our closest competitor. So why is that? What is driving our ability to deliver that or our listings franchise? And we will talk a little bit more about the listings flywheel in a minute. But that listings franchise, we now are over half of industry volume is NASDAQ listed companies. And for companies that list on NASDAQ, we have higher market share during the day. We have a relationship with them on the open and close and delivering the open and closing cross. And we think that it is also because of the quality of our markets, and we have great data support that we have just an exceptional quality of our markets compared to our peers, that that, of course, then drives more companies to list on NASDAQ. So it's a great listing flywheel. One really exciting thing that's happened this year is that as of Investor Day, we had higher market cap of our listed companies that are U.S. domiciled companies than our competitor down the street. But as of two weeks ago, we now have crossed over and we have more market cap listed on NASDAQ than our closest competitor has in the world. So we are very, very excited. I've been at NASDAQ for 33 years. So I can tell you that this is a big mark. This is a big mark for us. So we're very excited about the fact that the listings and the companies that are shaping the future of the economy are partnered with NASDAQ. As we look forward in our markets business, we are extremely focused on this notion of always on markets. On December 6th, we will be launching 23.5 trading on the NASDAQ stock market. Yes, we will still have a U.S. session and open at 9.30 and close at 4 o'clock. But then we will start a global session, and that global session will run over the evening. There will be one hour break between 8 and 9, but otherwise it will be a continuous market for the global session. The idea is today, outside of U.S. market hours, about a little over 10% of the trading is occurring outside of U.S. market hours. It's just occurring in the dark. So we want to bring it into the light. We want to introduce guardrails. We want to introduce critical infrastructure to make it so that this market can evolve and expand over time. But by doing that, it also parlays to the benefit of other parts of our ecosystem, including our surveillance technology, our trade infrastructure technology called Calypso and collateral management, our index business and demand from international investors for that, as well as the need for our corporate solutions, the need for corporates and investors to connect even better together. So speaking of corporates and investors, I will talk for a minute about our Capital Access Platforms business. So Capital Access Platforms consists of our listings, our market data, our index business, and some analytic solutions that really support corporates and investors in managing their lives in the public markets and the private markets. We had $2.1 billion of revenue, and our CAGR over the last five years has been 7%, with double-digit growth in 2025 and into 2026. And you can see that what we really focus on is also a very strong margin in this business. We've had an 800 basis point improvement in our margin in the last five years. um when we think about what's in this division we have a suite of capabilities that i mentioned across the listings corporate solutions our our indexes and our market data and when we think about the flywheel of the innovation economy and how our you know this capital access platforms is really designed to really power that innovation economy we have these deep corporate relationships we then deliver great very interesting and thematic indexes that really underpin the innovation economy, and other investor outcomes that people are looking for. And we make those globally accessible to billions of people around the world. We leverage our gold standard data to also allow our clients to make smarter asset allocation decisions, get access to unique alternative data that might power their investment decisions and trading outcomes, and make sure that we deliver unique IP in terms of helping corporates understand who are their investors, why are they changing, who should they target, but also helping investors look at and asset owners understand, how should I think about allocating my assets to different asset managers, both in the public and private markets? And it's a very exciting and interesting flywheel we've developed. We also are bringing AI across our franchise, including in the cap division. In investment, we have delivered this AI-ready data set that our clients are using to really, I would say, modernize their data management inside their own organizations within the asset managers. And what we've heard is that the data that we're delivering is actually 70% more token efficient as you're bringing this data into your organizations to manage your investment management decisions. We also have IR Insights. 74% of our clients are using our AI driven modules to be smarter about how they communicate with investors on things like sustainability, but how they reach investors and target investors. We also have BoardVantage, which is a board portal tool, and 51% of our clients are leveraging board summarization capabilities and other AI features in that solution. And then in index, we're using AI to really drive index creation in more unique and more innovative ways and be able to accelerate our ability to bring new products to market. Moving to financial technology, we have $1.9 billion of revenue there. We've had 11% adjusted growth year over year. And this is a newer division. So this division, many of the assets in the division did not exist in 2020. So we do not give you the five-year view, but the two-year view has been really, really substantial growth across everything in that division. We have three subdivisions, regulatory tech, which is regulatory reporting and surveillance. We have capital markets tech, which is market technology, giving our technology to other exchanges and regulators, as well as trade management services, which is connectivity and other services to support our markets. And then Calypso is a trade infrastructure technology suite. And then we have anti-financial crime with our Verifin solution, and all of which have really strong growth vectors and a large clientele. We serve 3,800 clients around the world, and we're really proud of that. We have 2,800 clients in the United States leveraging our Verifin anti-financial crime solution. And I bring that up because of the fact that it is an AI-ready. It's actually always been an AI-driven product, but we've been able to amplify that tremendously since the dawn of Gen AI. So in our Verifin product, we are allowed in the United States to bring data together across banks to manage crime better on their behalf as a third-party provider. So across 2,800 banks, we process over 1 billion up to 1.5 billion transactions a week where we can look at payor and payee data. We look at specific topologies of criminal behavior to make sure that we can root out criminal actors more effectively and efficiently, take down false positives, and find more fraud, and make sure that their AML programs are more effective. Now, with Gen AI, we're able to automate massive amounts of workflow for those clients so that once they go from an alert to a regulatory report, that entire process can be automated. And we're working really, really well with our clients to develop and deploy these at speed to really automate that part of the AML and, I'm sorry, AFC experience for our clients. With Axiom SL, we're using this to make sure that we're being much smarter and thinking about regulation that's coming out and how it's developing. We're also on the business doing a reg to code implementation of AI within our teams to be able to manage changes in regulation more effectively. And we have a whole suite of AI tools. Calypso, all about risk management. Can both algorithmic and gen AI, can we manage risk more effectively and efficiently? Collateral management be more efficient. And that just unlocks liquidity back into the financial system. And then, of course, surveillance is also a perfect use case for AI as we look for market manipulation inside our trading and other criminal behaviors inside of trading rooms and inside of markets around the world. So I'm sure you guys are going to talk about AI all day, but I will say that we've thought a lot about our platform and its readiness for the AI era. And we focus on four key assets inside our organization. We have our embedded client community. We have our gold standard data. We have our engineering excellence. And we have integrated client solutions. So let's start with our community. We serve 10,000 corporates, 5,000 institutional investors, 3,800 financial institutions, and 135 markets and regulators around the world with our solutions. So it's a very scaled community that we're serving. And when we apply gold standard data and we think about how that data, if we can bring it together effectively, we can deliver more value within our solutions and across our solutions to our clients. It's extremely exciting to think about the power of our data. We have built, because we've been cloud-first for the last 12 years, we have moved every part of our infrastructure to cloud and our client-facing solutions into a cloud-native state. So we're either fully deployed in cloud or we're deploying our clients in cloud today. That allows us to have access and embedded data that delivers better value. So I mentioned Inverifin, investment is a similar one. It's a network effect product where asset managers put their data in to make it so that they can expose themselves more effectively to asset owners. And asset owners bring data in to make it so that they can make smarter asset allocation decisions. In Calypso and in Axiom Accel, we now are cloud native in how we're delivering. And we have more and more of our pipeline as well as more and more of our sales really driven into cloud native versions of those products. It's very exciting, but you can see how scaled we are in the data that we offer and how we think about data strategically across the enterprise. We then have incredible talent, and I'm sure many technology companies have incredible talent. Our talent is built for hyper-resilient, hyper-secure, machine-to-machine capabilities at scale and speed. Think about hyper-low latency with about 500 billion messages coming into our markets every day. How do we process that with a 20 microsecond latency on order to trade? Well, that's an incredible engineering feat. But what that means, we have that great embedded talent that we're now applying to all of our solutions in terms of moving everything into a hyper real-time basis. We understand machine-to-machine communications and how we can optimize that. We understand cloud and how we can optimize that. And we definitely are bringing all of those capabilities to everything we do across NASDAQ. Now, as we think about it from the client's perspective, what do they care about when they're thinking about choosing partners, especially partners in an AI era? The first thing is, do they have critical data that's going to serve me and deliver more value for me? Am I using that solution for something that is mission critical, so where precision is absolutely critical to success. Is that partner hyper-secure and resilient in making sure it's always available, it's always on, it's always secure, but also where we can bring an immense amount of innovation into those solutions? We also look at the depth of our integration and connectivity with our clients, and that runs very, very deep down to their core, core systems in the depths of their organizations to extract data that they may not even be able to extract easily to put into these solutions to make it so they can manage risk better, manage financial crime, make sure that they can trade more effectively and efficiently. And then we have an immense amount of domain expertise. And I would say domain expertise in our industry isn't just about scientific knowledge. It's really about judgment as to how the markets work, how they're connected, how you want to make sure these solutions are optimized for outcomes in a very complex global capital market ecosystem, and making sure we can deliver and show them compelling ROIC. We also price our products on an enterprise basis. The vast majority of our products are priced at an enterprise level. The only products that are not are really geared towards very small teams inside of organizations. So I are inciting governance. We're talking, you know, between, I would say anywhere between three and 30, maybe 40 people, um, leverage those products within each organization. So we have a very broad clientele across those solutions. And we also have, we really focus on, on, on contract duration as well. So, um, the last thing I would say about, you know, kind of how we think about our platform and delivering to our clients, we deliver against a very large serviceable addressable market of $38 billion and it's growing 9% a year. And I think that, and also as we go and look at the TAM at $86 billion, that's important because the more that we can automate capabilities for our clients and take out manual workflows, the more the TAM becomes our SAM. And we are very focused on that across these three key pillars of growth for NASDAQ. We have our expand pillar, where we are expanding our current solutions to a broader clientele, opening up new markets around the world, cross-selling more of our solutions, and making sure we're upselling land and expand across our enterprise clients. We want to evolve our platforms by making them more efficient and modernizing workflows, making sure that AI, the product roadmaps, all have an AI-first orientation to them. And then we also have some interesting and strategic partnerships we've developed, because as a platform provider, we might find that we may not be the one to deliver the last mile solution, but with their other strategic partners where we can leverage our relationships and our data to make it a win-win for both of us. And then we're continuing to transform the markets, transform the client experience. Also thinking about private and public markets and how that's symbiotic and the solutions and how we offer a lot of the cap solutions into the private market ecosystem. We also are focused on always on markets and the convergence of asset classes in trading across the world. So all of that has given us the confidence at Investor Day to increase our medium-term outlook for the business. We talk about medium-term outlook as being a three-to-five year growth projectile. And so within capital access platforms, it's 6% to 10%. Financial technology is 10% to 14%. Our total solutions revenue of 9% to 12% against our operating expense growth of 5% to 8%. We do not provide a medium-term outlook on our trading businesses just because it's less predictable, but we have seen really strong growth and expansion of that business as well. And when it comes down to it, then as a result of all of that and that great cash flow that I mentioned of $2.2 billion, so how do we think about capital allocation? We want to continue to be that great growth company that we've become. And so we are continuing to drive organic growth and organic investments across our business. And we use something called a horizon framework to make sure we're allocating towards growth and expansion and innovation. So we look at all of the return on invested capital of all of the capital we spend in product management, product development, to make sure that we're driving towards a growth orientation in a horizon framework. We want to deliver, and we are delivering, we're actually this year crossing back into the 10%. On the back of the acquisition, we did three years ago. We're now back into a 10% enterprise ROIC. We have our venture investments as well as potential bolt-on M&A that we consider on an occasional basis. But we are extremely focused on organic growth because we have so many growth vectors within our business. We have a leveraged target of mid to high twos, and we obviously want to maintain our investment grade rating. And then we focus on share repurchases. We repurchase a little over $500 million dollars worth of shares in the first quarter of the year. And we're continuing to see that as a core component of our capital allocation with our dividend of having a progressive dividend based on how our earnings grow over time. So in summary, we really, our vision is to be the trusted fabric of the world's financial system. I think we are really achieving that goal with our clients and the strategic orientation to our business. And we also want to be their transformation partner, and we're doing that across all three of those three key pillars of architecting the world's most modern markets, powering the innovation economy, and building trust in the financial system. And we do this with financial discipline and execution discipline that's delivering great results for all of you, our shareholders. So with that, I want to thank you very much for listening, and I hope you have a great day. Thank you.