NASDAQ, INC. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Integration: The acquisition of AxiomSL and Calypso accelerated Nasdaq's platform journey, with the Financial Technology Division emerging as a vital innovation force, having signed 263 new clients, 424 upsells, and 116 cross-sells in 2024.
• Capital Access Platforms: Continued listing leadership with 180 IPOs raising $23 billion, and Index franchise delivered 31% revenue growth with 116 new products launched.
• Market Services: Demonstrated leadership in U.S. and European markets, modernized markets with migration to Fusion platform, and announced sale of Nordic Power Futures business to sharpen focus on strategic growth areas.
• Strategic Priorities: Executed on integrate, innovate, accelerate priorities, achieving expense synergies and deleveraging goals ahead of schedule, with solid free cash flow and lower gross leverage ratio.

Segment Performance

• Capital Access Platforms: Full year revenue growth of 10%, with ARR growth of 3%. Data and listings revenue grew 1% for the year, while Index revenue was up 31% for the full year and 29% in the quarter. Quarterly revenue was driven by higher data sales, new listings, and pricing, partially offset by delisting and downgrades.
• Financial Technology: Total division revenue grew 10% for the year and 7% in the fourth quarter, with ARR growth of 12%. Financial Crime Management technology revenue increased 22% for both the year and quarter, Regulatory technology up 7% year-over-year and 6% quarter-over-quarter, AxiomSL up 7% year and 5% quarter, Surveillance up 6% year and 7% quarter, and Capital market technology up 8% year and 4% quarter. Combined AxiomSL and Calypso revenue increased 13% for the year and 2% in the quarter with ARR growth of 12%.
• Market Services: Net revenue growth of 4% for the year and 12% in the fourth quarter, driven by strong adoption of index options and multi-listed options products, record volume traded in the closing cross, and progress in modernizing markets. Announced sale of Nordic Power Futures business.

Guidance

• 2025 Outlook: Well positioned for durable revenue growth, with Financial Technology expected to grow 10%-14%, Capital Access Platforms within 5%-8%, and Market Services with net revenue growth. Non-GAAP expense guidance range $2.245 billion to $2.325 billion. Aim to reduce gross leverage to 3.3 times by end of 2025 while repurchasing shares to offset dilution.
• Financial Technology: Expect division to grow within 10%-14% range in 2025, with Financial Crime Management Technology at low end of mid-20s range, Regulatory Technology at high end of high-single to low double digits, and Capital Markets Technology within high single to low double digits.

Risks

• Uncertainties in regulatory environment impacting client demand and sales cycles.
• Potential changes in bank regulations affecting demand for RegTech solutions.
• Economic factors and IPO pipeline uncertainties impacting Workflow and Insights business.
• M&A activity uncertainties potentially lengthening sales cycles in financial services.

Question and Answer

• Q: Alexander Blostein from Goldman Sachs on Workflow and Insights outlook A: Adena Friedman discussed that Workflow and Insights is a lagging indicator behind the IPO environment, but Analytics (eVestment) is growing at high single digits and expected to continue, with improvement expected as IPO environment normalizes.
• Q: Craig Siegenthaler from Bank of America on potential deregulation impact on RegTech A: Adena Friedman noted AxiomSL serves global banks, with 69% of revenue from non-U.S. banks, and sees strong demand for RegTech solutions across different regulatory landscapes, confident in growth potential.
• Q: Patrick Moley from Piper Sandler on Financial Technology outlook A: Adena Friedman discussed Financial Crime Management Technology has strong client expansion but early innings in Tier 1 bank deals, with global expansion opportunities, and FinTech division expected to be within 10%-14% growth range.
• Q: Benjamin Budish from Barclays on Workflow and Insights conversion rate and ESG outlook A: Adena Friedman said Corporate Solutions is a lagging indicator, needing normalized IPO environment, and ESG demand shifted towards non-U.S. companies and operations due to new disclosure obligations.
• Q: Michael Cho from JPMorgan on regulatory reform areas A: Adena Friedman mentioned proxy process reform, accounting policy and PCAOB balance, litigation reform, and short position disclosure as areas for regulatory engagement.
• Q: Dan Fannon from Jefferies on professional service fees in FinTech A: Adena Friedman stated professional services are a means to an end, with expectations of upward trajectory in 2025 due to signed deals in 2024.
• Q: Owen Lau from Oppenheimer on Cap Markets Tech ARR decline A: Adena Friedman attributed ARR decline to year-over-year comps and deal timing, but expects AxiomSL and Calypso combined ARR growth within mid-teens range.
• Q: Michael Cyprys from Morgan Stanley on AI impact A: Adena Friedman discussed using multiple models for AI, embedding GenAI capabilities in products, and internal AI efficiency programs to drive product development and client success.
• Q: Jeff Schmitt from William Blair on Proprietary Index Options business A: Adena Friedman highlighted the virtuous cycle of Proprietary Index Options business, leveraging exchange franchise, driving institutional and retail adoption, and continuing to invest in product development.
• Q: Ashish Sabadra from RBC on ARR vs revenue and expense synergies A: Sarah Youngwood explained ARR vs revenue differences due to professional services fees and Calypso comps, and expense synergies program benefits with 2.5% impact in 2024 and 2% in 2025.
• Q: Alex Kramm from UBS on bank M&A impact A: Adena Friedman saw bank M&A as net opportunities, with Verafin contracts baked to handle merged banks, and sales cycles managed despite uncertainties.
• Q: Brian Bedell from Deutsche Bank on FinTech sales metrics seasonality A: Adena Friedman noted Q4 is seasonal high sales quarter, but strong trends carry into 2025 with expectations Q4 remains high quarter.