Nasdaq Inc - 144A (NDAQ) — Q4 2017 Earnings Call Transcript

Good morning, everyone, and thank you for joining us to discuss Nasdaq's fourth quarter 2017 financial results. On the line are Adena Friedman, our CEO; Michael Ptasznik, our CFO; Ed Knight, our General Counsel; and other members of the management team. After prepared remarks, we'll open up to Q&A. The press release and presentation are on our website. We intend to use the website as a means of disclosing material, non-public information and complying with disclosure obligations under SEC Regulation FD. I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these projections. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and periodic reports filed with the SEC. And now I'll turn the call over to Adena.

Thank you, Ed, and good morning, everyone. Thank you for joining us. I want to use our time together to discuss our strong 2017 financial performance, update you on the actions we've taken to drive forward the new strategic direction for Nasdaq that we unveiled last year. Detail our execution priorities for 2018, and lastly, address the latest developments on the macro and regulatory backdrop for us and our clients. Q4 2014 featured strong results with non-GAAP EPS of $1.5, up 11% year-over-year, exhibiting particularly strong momentum across key areas of our business. Turning to the full-year 2017, we generated total net revenue of $2.4 billion, an increase of 7%. Non-GAAP operating income rose 9% on higher margins, and we increased our non-GAAP diluted EPS by 10% year-over-year. Free cash flow from operations excluding Section 31 fees rose 18% to $756 million. Subscription and recurring revenues increased 7% in 2017 compared to the prior year to over $1.8 billion, driven in large part from organic growth and represented 76% of total net revenues. We continue to invest where we have conviction that we can bring value to our clients in new ways both through our organic initiatives and through our eVestment and Sybenetix acquisitions. We complemented this with strong capital returns to shareholders. Dividends and share repurchases totaled 65% of our non-GAAP net income for the year. The net result was another year of delivering on our double-digit total shareholder return ambition, driven through a combination of great positioning we've established to help our clients respond to important industry trends and technological advancements, gains from our improving competitive position, and a continued focus on execution and efficiency. Turning to the specific highlights from our businesses in the quarter and across the year. In our Information Services segment, we saw a 19% increase in Index Licensing and Services revenue in 2017, with assets under management and exchange-traded products linked to Nasdaq indexes rising 35% to a record $167 billion at year-end. I've mentioned in particular that Smart Beta indexes today comprise over 40% of our total AUM, which positions us especially well for the future. Market Technology generated a 10% increase in revenues in 2017. More importantly, new business is strong with $292 million in total order intake for the year, a reflection of the increasing demand for the partnership approach we take with our clients in offering world-class market infrastructure and surveillance technology to the industry. Order intake in the fourth quarter reflected new and deeper client relationships, including an expansion agreement with Tadawul, the Saudi Arabia Exchange, to deliver new cash and derivatives clearing, central securities depository, and post-trade risk management technologies, as well as an agreement with SIX Group for the provision of an index system. Additionally, the Singapore Exchange is adopting the Nasdaq Financial Framework technology for their securities markets. Importantly, over the course of 2017, Nasdaq also signed a record six new exchange clients across core trading matching, risk management, and post-trade systems, including BVP in Panama, STRATE, the South African CSD, and Astana International Exchange in Kazakhstan, while also experiencing growth in its SMARTS surveillance and BWise enterprise risk management businesses. Turning to our Foundational Marketplace businesses, starting with Corporate Services. We completed the year with strong trends across the business. Nasdaq continues to be the U.S. listings leader, winning 69% of U.S. IPOs in the fourth quarter, and 63% for the full-year, with 136 IPOs and 62 new ETP listings. Some highlights for the fourth quarter include CarGurus, MongoDB, National Vision, and Stitch Fix. Nasdaq's Nordic markets delivered a record-breaking 108 new listings in the year, including a notable company in the video entertainment and monitors group. The total number of Nordic listings increased 9% to 984, and our Nordic markets continue to lead Europe in SME listings. Nasdaq also attracted a particularly strong number of listing transfers in 2017 with 21 ETP switches and 11 corporate switches, including PepsiCo, the largest exchange switch ever, Principal Financial, Visteon, Xcel Energy, and Workday. The switches represent companies across six major industry categories, marking our most diverse year for companies choosing to join us from our key U.S. competitor. In total, $358 billion of market capitalization switched to Nasdaq during 2017, bringing the aggregate market capitalization switch to over $1.2 trillion over the past 12 years. In our Corporate Solutions business, we continue to enhance our flagship Nasdaq IR Insight product by rolling out two new analytics supplements in 2017. Insight 360, which uses machine learning to help companies quantify and benchmark the effectiveness of their IR program, and PassiveIQ, which delivers unique insights to our corporate clients on the increasingly important passive portion of the investment universe. In Market Services, we gained market share in 2017 across our three biggest revenue categories; U.S. options, U.S. equities, and European equities, while Trade Management services continue to deliver consistent growth. In Europe, we have positioned ourselves to deliver for our customers and earn more of their business as a result of the new regulations and requirements resulting from MiFID II. We've adapted and innovated around changing regulations with the launch of a periodic auction feature called Auction on Demand. We've seen good initial momentum since the start of the year, and we believe that momentum will continue to pick up as the double cap restrictions are placed on European Dark Pools in the spring. Stepping back to look at the broader organization's performance, I am pleased to report significant achievement against our execution priorities for 2017. First, we increased our competitive position across the majority of our businesses, best exemplified by our market share gains in the three largest trading revenue categories, our exceptional performance in Index Services, market-leading new listings in the U.S. and Nordic markets, and our landmark wins in new applications of our Market Technology. Second, we completed the integration of the ISE acquisition six months ahead of schedule, while maintaining market share and customer momentum, delivering on the full $60 million in targeted cost synergies and identified additional cost opportunities along the way. And third, we saw meaningful progress commercializing the important disruptive technologies where we have developed deep internal expertise, including sales of the Nasdaq Financial Framework, which incorporates Blockchain and cloud capabilities enhancing the market operators, as well as the Analytics Hub and Insight360 products, which leverage machine learning to develop new insights for our investor and corporate customer base. As we focused on those execution goals, we also spent the year reviewing our broader strategy to determine the best way for our company. Specifically, in September of 2017, we communicated to you the results of the strategic review and articulated a renewed strategic direction to maximize the resources, people, and capital allocated to our biggest growth opportunities, particularly in our Market Technology and Information Services businesses. We also affirmed our commitment to sustaining the special marketplace platform businesses that are core to Nasdaq, and said that we will be reducing capital resources in areas that are not strategic to our clients and do not have significant growth potential within Nasdaq. We immediately went to work to begin executing against our strategic plan in terms of putting more resources behind our biggest opportunities; we closed the acquisition of eVestment in late October, adding their unique and high growth institutional investment data and analytics. With it comes the potential to catalyze higher growth not only in our information services business, but also to unlock bigger opportunities across several buy-side-focused organic initiatives for eVestment's great client relationships to open new doors. We have been very pleased to see eVestment's strong momentum continue for the fourth quarter. eVestment's topline standalone results in the fourth quarter of 2017 grew 13% year-over-year to $23 million. In terms of metrics that drive future period new subscription sales in the fourth quarter, they rose 77%, and the retention rate was 5 percentage points higher versus the prior year fourth quarter. In addition to our eVestment acquisition, we reaffirm some key ongoing internal strategic growth initiatives, notably our investments in the Nasdaq Private Market, and FX, and ocean. We also decided to continue to increase our investment in our analytics data initiative, our buy-side market surveillance offering supplemented by the acquisition of Sybenetix, and the Nasdaq Financial Framework as the foundation for our next-generation market infrastructure platform for both our own markets and for those clients we serve with our Market Technology expertise. On the other hand, regarding areas where we are reducing capital, we announced on Monday that we completed the review for strategic alternatives for our public relations solutions and digital media services businesses, resulting in the sale of those assets to West Corporation. As part of the terms of the transaction, we've agreed to an exclusive multi-year partnership with West to provide our eligible Nasdaq listed clients seamless access to certain products and services included in the transaction. This will allow us to concentrate our investments going forward on our core high value investor relations intelligence and board collaboration solutions along with our leading listing franchises and pioneering private market solutions, which have been critical in terms of our strategic positioning with our corporate clients. To sum up our progress on implementing our new strategic direction with eVestment experiencing strong closing momentum, our decisions to move resources more decisively behind our most promising growth opportunities, and our agreements to place the press release and multimedia businesses in the hands of a high-quality partner, we are taking strong early action to get our business positioned to reach its full potential. Building upon our momentum and executing against our strategic pivot, we have developed our tactical priorities for 2018. Specifically, first maximize our opportunities as an innovative analytics and technology partner to the capital markets industry. This includes, enhancing our culture to attract and retain creative talent across our technology and business organizations; two, investing our capital and innovations such as the Nasdaq Financial Framework behavioral surveillance analytics; and completing the Multimedia and PR divestiture to free up time and resources to focus on growth. The second priority is developing and deploying our marketplace economy technology strategy, which is intended to broaden the set of applications for our world-leading capital Market Technology to include a wide range of sophisticated non-financial markets. Lastly, advancing our competitive position across our core businesses is obviously a continuation of the 2017 goal, especially for ISE opportunities to build on our momentum in areas that we saw gains last year. I look forward to updating you on our progress on these goals as the year progresses. Now I want to spend a few minutes on the current state of the backdrop we operate in, encompassing macroeconomic conditions as well as the regulatory environment. On the macroeconomic backdrop, we remain positive on the potential impact of synchronized global economic growth. Economies, as well as equity markets, have considerable momentum across the U.S., European, and Asian regions, which are all important in different ways to our core client group. We continue to experience a relatively low volatility environment, although we are seeing some early signs of increasing volatility as we enter 2018. Moving to the political and regulatory environment, nearly a year ago we saw an opportunity in Washington as the new administration was getting started and took action by releasing our blueprint to revitalize the U.S. capital markets. It is intended to spark a dialogue about making sure we're doing all we can to foster an attractive public environment for growing companies. In many ways, the administration's agenda and priorities as they relate to the markets, as well as various legislative initiatives, have aligned closely with the proposals in our blueprint. This includes regulations for proxy advisory firms proposed by Congressman Sean Duffy of Wisconsin that recently passed the House. The new SEC Chairman Jay Clayton views activist investors as risk to the proxy system, and his actions to allow firms to keep parts of their IPO registration filings confidential, regardless of their size, are part of this effort. These early initial steps towards improving the U.S. public markets make them more attractive, which will thereby further job growth, job creation, and economic growth. Switching gears to specific market structure proposals of the SEC, we strongly believe that the recent market close proposal risks destabilizing the market close and harms our listed companies and their shareholders. This proposal generated unprecedented protest, including negative comment letters from dozens of issuers and the largest U.S. equity index or trading firms and asset managers that rely on critical market closing auctions to value trillions of dollars of investors' assets every day. While we believe the financial impact to Nasdaq is likely immaterial, we feel strongly that the proposal carries a significant risk of harming issuers and investors. Therefore, we are actively responding by filing a petition, highlighting the potential impact, and asking SEC commissioners to review the decision. We aim to continue our leadership as a voice in Washington for our clients in 2018. Turning to tax reform, we've been active and enthusiastic supporters of tax reform as a mechanism to spur investment and growth and make the U.S. corporate environment more competitive globally. Therefore, we are very pleased with the outcome of the bill. Specifically, for Nasdaq, assuming the tax reform bill is applied to normalize 2017 results, it would have resulted in approximately $6 million in additional free cash flow for the year. Going forward, with the additional cash flow, we intend to focus our investments on our largest growth opportunities where we expect to generate the highest returns for shareholders, while also providing increasing capital returns to shareholders, all of which is consistent with the capital allocation priorities we put in place. In conclusion, we are coming off a strong year and will continue to be guided by our new strategic direction. As I enter my second year as CEO, I see evidence of an expanding potential for this organization, in terms of how we solve increasingly advanced client challenges, as well as deliver for our shareholders. I could not be more excited about the future of our company. I'm convinced that Nasdaq has the unique skills, experience, and vision to continue generating tremendous value, and importantly, there is a relentless drive to continue innovating and disrupting as we've done since our founding. And with that, I'll turn it over to Michael to review the financial details.

Thank you, Adena, and good morning, everyone. My commentary will primarily focus on our non-GAAP results, and our comparisons will be to the prior year period unless otherwise noted. Reconciliations of U.S. GAAP to non-GAAP results can be found in the attachments to our press release and in the presentation that's available on our website. I'll start by reviewing fourth quarter revenue performance as shown on Page 3 of the presentation and organic growth on Pages 4 and 15. The 6% for $36 million increase and reported net revenue of $635 million consisted of organic growth of $17 million, including 5% organic growth in the non-trading segments. A $12 million favorable impact from changes in foreign exchange rates and a $7 million impact from acquisitions, which is net of an $11 million purchase price adjustment on deferred revenue associated with the closing of the eVestment acquisition. I will now review quarterly highlights within each of our reporting segments. I will start with Information Services, which, as reflected on pages 5 and 15, saw a $21 million, or 16%, increase in revenue, including $12 million, or 9%, organic growth. Index Licensing and Services revenues were up 23% in the fourth quarter of 2017, primarily due to higher assets under management in exchange-traded products linked to Nasdaq indexes. Data product revenues increased 13%, primarily due to the inclusion of revenues from our acquisition of eVestment which closed in late October, net of an $11 million deferred revenue purchase price adjustment. This adjustment was approximately $2 million higher than the estimated guidance we provided last quarter. This does not reflect the change in the total adjustment, just the shift in timing of recognition. For the full-year of 2017, Information Services organic growth totaled 7%. Market Technology revenue, as shown on pages 6 and 15, increased $10 million, or 13%, with organic growth totaling $8 million or 10%. Organic growth totaled 9% during the full-year of 2017. The period-end backlog finished at $847 million, a record high and an increase of 9% from the prior year quarter. The operating income margin for Market Technology was 24%, down 6 percentage points from 30% in the prior year period, primarily due to the impact of investments we're making to upgrade our technology for the next generation Nasdaq Financial Framework, and to enhance and grow our surveillance offering. Two initiatives that we believe can help move the Market Technology margin to higher levels as they scale in future periods. Turning to Corporate Services on pages 7 and 15, revenues increased $3 million, or 2%. In our Listings segment, there was a positive $2 million impact from changes in foreign exchange, while revenue growth in the Nordics was offset by lower U.S. listings revenues from the runoff of listing of additional share fees due to the adoption of the all-acquisitive annual and listings of additional share fee package. We expect a moderate boost to U.S. listing fee revenues in 2018 as all-acquisitive offerings become effective for all U.S. issuers on January 1. For the Corporate Solutions segment, revenues increased $1 million, or 1%, due to favorable changes in foreign exchange rates. The Corporate Services operating margin was 30% versus 25% in the prior year period, with operating income increasing 24%, reflecting increasing efficiencies and the achievement of synergies. Market Services net revenues, on pages 8 and 15, saw a $2 million, or 1%, increase, with $5 million positive impact from changes in foreign exchange, partially offset by a $3 million organic decline. The organic decline was due to lower revenues in U.S. options, partially offset by organic growth in European cash equity trading and trade management services. The decline in U.S. options was due to lower average net revenue capture, driven by shifting mix factors as well as our deliberate actions to share a portion of cost synergies related to the acquisition of ISC with market participants. This was partially offset by higher market share and industry volumes. We have put in place pricing refinements intended to stabilize pricing as we move into 2018. Market Services operating income totaled 55%, up 1% from the prior year period, and operating income increased to 3%. Turning to Pages 9 and 15 to review expenses. Non-GAAP operating expenses increased to $17 million to $341 million, with a $16 million expense increase from acquisitions and a $7 million unfavorable impact from changes in foreign exchange rates, partially offset by a $6 million organic decrease. The organic decrease was $6 million compared to the prior year quarter, principally reflecting changes in variable compensation accrued in the period, as well as a lower provision for bad debt. Turning to Slide 10, I would like to discuss our expectations for 2018 non-GAAP operating expenses. We expect non-GAAP operating expenses of $1,375 million to $1,415 million in 2018, which based on our current projections include approximately $170 million of full-year costs related to the Public Relations Solutions and Digital Media Services businesses that we announced we agreed to sell. The increase from our 2017 expense base of $1.270 billion, which is restated for the impact of revenue recognition accounting changes, is composed of about a 3% organic increase, most of which is due to spending in our growth initiatives, about 1.5% from FX changes, and the remainder due to the full-year impact of our late 2017 acquisitions of eVestment and Sybenetix. Assuming a mid-year 2018 close to the transaction, we expect our expenses would decline by approximately $65 million to $70 million from our 2018 expense guidance. We expect to achieve a full annualized run rate savings of approximately $170 million within 12 months of closing of the transaction. We will update our official guidance to reflect the exact closing date and any updates to the expenses elimination timing after the transaction is closed. Moving to operating profit and margins, non-GAAP operating income increased 7% in the fourth quarter of 2017, and the non-GAAP operating margin totaled 46%, unchanged versus the prior year period, a reflection of margin expansion in the core business being offset by the impact of the eVestment acquisition, whose profitability is temporarily impaired by the purchase price adjustment on deferred revenues, as well as compensation and other expenses associated with our acquisition. Net interest expenses were $34 million in the fourth quarter of 2017, a decrease of $2 million versus the prior year period, primarily due to refinancing to lower cost debt, partially offset by the increased debt due to eVestment. The non-GAAP effective tax rate for the fourth quarter of 2017 was 32%, which excludes the impact of excess tax benefits related to employee share-based compensation. We made a decision to exclude the excess tax benefits from our non-GAAP results presented for the fourth quarter and full-year 2017, as well as going forward due to the volatility, and the fact that they are not reflective of current period operations because management does not consider the excess benefits when evaluating or allocating resources to our businesses. For the full-year 2018, our non-GAAP tax rate guidance is a range of 24.5% to 26.5%, a decrease of 7 percentage points to 9 percentage points from our 2017 non-GAAP tax rate of 33.3%, reflecting principally the Tax Cuts & Jobs Act enacted on December 22, 2017. Non-GAAP net income attributable to Nasdaq for the fourth quarter of 2017 was $197 million, or $1.05 per diluted share, compared to $161 million, or $0.95 per diluted share in the prior year period. On Slide 11, we discuss revenue and expense impact under the adoption of ASU, 2014-09, which impacts the timing, not the amount of revenue and expense recognition. This accounting change will go into effect beginning Q1 of 2018 and will be restating 2017 results at that time to ensure results are presented on a comparable basis. While this change will lower our 2017 GAAP and non-GAAP results modestly, it does not affect our cash flows in the period, nor change our expectations for the organic growth we expect in the coming periods. Turning to capital that increased by $464 million versus 3Q 2017, primarily due to $441 million net debt issuance to fund the eVestment acquisition and a $22 million increase in Euro bond book values caused by a stronger euro. Our debt-to-EBITDA ratio ended the period at 3.3 times versus 3.1 times at the third quarter of 2017. As mentioned previously, we continue to plan to delever to a mid-two times leverage ratio by mid-2019. Share repurchases in the fourth quarter totaled $29 million, bringing total 2017 repurchases to $203 million, together with dividend payments. We returned $446 million to shareholders during 2017, representing 65% of our non-GAAP net income in the period. In addition to continuing our regular stock buyback activity with the intention of maintaining a stable share count, we anticipate using the after-tax proceeds from the sale of the Multimedia and PR businesses to repurchase additional shares, which is expected to lower our share count modestly and largely offset the EPS impact of the elimination of the annualized net income associated with the divested businesses. As of December 31, 2017, there was $226 million remaining under the board-authorized share repurchase program, and our Board of Directors recently approved an increase to our share repurchase authorization of an additional $500 million. We plan to continue to use our capital, including enhancements due to lower tax rates, to optimize the returns to shareholders, to focus investment in organic growth opportunities, carefully considered M&A, and to continue growing the dividend as earnings and cash flow increase. Thank you very much for your time, and I'm going to turn it back to the operator now for the Q&A session.

Yes. Good morning, Adena. Good morning, Michael. I guess my questions is on the strategy and the strategic pivot, and it looks like you took up the R&D spending by $20 million or more than 50% compared to last year. And I guess the question is how do we think about the return on the ROIC as you invest more I guess in the Analytics Hub buy-side surveillance and Nasdaq Financial Framework?

Michael, why don't you start by saying what that comprises of? That would be great.

Yes. So Rich, thanks for noting that. So the increase in the R&D expenses was $65 million to $75 million. Now this does appear higher than previous years for two reasons. First of all, it's in line with the new strategic approach that we've been outlining, and reflects the reallocation of resources from the businesses that we will sustain or deemphasize towards those initiatives that reflect the longer-term growth opportunities, like the ones Adena spoke about earlier. So it's a reallocation from these businesses into the new areas, and the new, so it's not an increase in the overall spend, it's a reallocation of resources. That's number one. Secondly, the previous numbers that we used to provide excluded certain initiatives that were included in normal operating expenses, and now have been reclassified and grouped with our R&D program, and that really allows us to manage these investments in a manner that's more conducive to their growth nature versus operational nature.

And in terms of the return potential and how we manage and measure these investments, Rich, a couple of things. By putting all of these initiatives into what we're now calling Nasdaq Next, which is our internal program name, we have a way to essentially require a lot of visibility around the programs. We do regular meetings with the teams that are implementing the different initiatives. They provide us future forecasts and other ways for us to measure how they're progressing against certain targets. But as we have made the decision to either approve or re-approve these programs, we do look at the long-term ROIC characteristics of these opportunities. Each one of them has a different timeframe for that because if it's kind of an extension of an existing business, we might put a shorter timeframe on when we expect to see a nice return from that. But if it's a brand new thing that we've never done before, we usually give it a longer runway to continue to try to grow. In terms of the ROIC, I think that these are the things that we can do that if we can scale them on an organic basis. The ROIC is significantly higher than if you're using your capital for acquisitions and other things. So it's worth taking the risk to try to get a really attractive return over the long term. We do believe these are the things that will also strategically carry us forward with our clients and so they're very important to the way that we're running our business going forward. But they each have a different profile.

Okay. Thank you. And then my one follow-up would be I guess closely related to the first question here, but when you look at the margins in Information Services as well as Market Technology, they were down year-over-year, and Information Services quarter-over-quarter materially. And I guess, can you help us understand, I guess from the first question, the extra investment that's going in there and the impact on margins going forward in these areas that you're prioritizing?

Sure. Yes, on Information Services, the margin is really down because of the eVestment acquisition, especially given the fact we have some deferred revenue that we have to - the purchase price adjustment on the revenue in the fourth quarter also brings it down even further than otherwise wanted on a normalized basis. But the eVestment acquisition does have a lower margin profile than the overall Information Services business, so that will have somewhat of an impact. The Analytics Hub initiative within that data business has been ongoing for a while, so that's been baked into our margins over the last few periods. Even if we increase investment there, it's still going to be modest in comparison to the overall business. On the Market Tech side, though, that is more a reflection of organic growth, organic investment in both our surveillance for buy-side and our Nasdaq Financial Framework initiatives. Those are areas with relatively heavier internal investment because we see the profile of those being very high return over the long term. And the one thing I would say is that when we first started to take on the Market Tech business, it was actually a money-losing business, but we've been moving it up to the margin that started the year over time, but there were periods of time where it either flattened out or even declined a little bit as we invested in integrations or invested in new technologies to drive it to a higher margin. I do believe that with the Nasdaq Financial Framework investment, that's a period of investment that will drive us to a higher margin and much higher growth over time because we'll be able to scale that business, hopefully provide a deeper relationship with our clients and make it so that we can deploy more clients faster over the long term. So there are a lot of benefits that come from that investment right now, and that's what's driving down the margin this year.

I understood. Thanks, and I'll look forward to a strong 2018.

Thank you very much.

Good morning, everyone. I just wanted to touch a little bit on Market Technology. It seems like it was another very strong quarter, nice broad-based growth in the order backlog. Last quarter, you talked about that moving to more of a SaaS recurring business model and order backlog is not as representative as it has been in the past. I am just trying to interpret how to think about the growth we are seeing in the order backlog and just the ongoing trend here. It seems to me you are building a nice stable recurring business revenue line, but now you're seeing some accelerated growth on top of that, so any color there would be helpful?

Sure. And you are right. We are doing two things. One is we want to move more of our implementations towards our recurring model. We want to move more of our product base towards kind of a platform-as-a-service or a software-as-a-service model, and that is frankly part of the Nasdaq Financial Framework investment. So there are parts of our business such as surveillance and increasing the BWise where it really is more of a software-as-a-service. The core Market Tech business continues to be primarily a deployed solutions business, but with the Nasdaq Financial Framework, the whole notion is to move it more towards a platform-as-a-service model. But we have said in the past that we are looking towards new metrics to measure this business and that order intake is becoming less relevant as the only way to look at the business. We will be, as we go into Investor Day, looking at new metrics or additional metrics that we want to provide you, so you get a better sense of how to measure the growth. But I would say, overall you're correct that the overall characteristics of the business, there's just a lot of demand for what we do, and it's really great to see that our clients see us as the best partner for them. I think the investments we're making in the Nasdaq Financial Framework are giving them increasing confidence that if they invest in us now, we'll be able to carry them into the future. These are really long-term investments that the clients are making, but they know that we're investing in their future by investing in the Nasdaq Financial Framework.

Thanks. And then just a quick follow-up. I mean you noted some nice change this quarter, I think in the last quarter you talked a little bit about penetrating some of the Tier 1 banks. Do you see any further opportunity with the bank penetration because that seems to be, to me, like one of the bigger opportunities from a longer-term perspective within this business?

Yes. We do see continued opportunity in the banks, and those sales cycles just take a while. So we are in active dialogue with several banks, and we hope to obviously continue to drive that growth in new bank deals as well.

Thanks a lot.

Hi. Good morning. Just a follow-up on some of the color earlier around SEBO's market on close. I think you said it was likely immaterial to results. Is there any way you could help kind of quantify a percentage of the cash equities revenue that comes from market on close orders today?

So we don't provide that level of detail in terms of the financial performance of our equities business, but I think it's been widely stated and I think it's out there. About 5% of our volume in Nasdaq was issues come from the closing activity, but that's a combination of a lot of different order types that all come together, so you've got market on close, going on close, the balance only, and then regular market orders that come in. It's really a combination of a mix of things, and so we don't break out very specific areas. But as I said before, we really do believe that assuming we manage through this issue successfully, we should continue to have all those orders come into Nasdaq, and we believe very strongly about that, as witnessed by our petition. To the extent that there is a competitive environment that develops, we definitely believe that we'll be able to manage that very successfully with, as we said, likely a material outcome for us.

Okay. Thanks. And just one follow-up for me would be on the strategic pivot. And I know at the time of the eVestment acquisition, you kind of laid out what the idea was for investing in different segments, and we got the divestment since then. I guess is this strategy going forward, is this going to be a continued kind of looking at lower growth, lower margin businesses that maybe within different segments across the firm on an ongoing basis? And I guess if that process is still going on, and I guess if you could share if there’s anything else here that you're thinking about in certain segments they potentially divest going forward? Thank you.

Sure. Yes, it is a continuous process, and it will be going forward. I think that it's something where our leadership team is always considering how we are best serving our clients and making sure that everything we do is strategic to them, strategic to us, and something we're really good at. We will continuously look at our suite of offerings in the capital markets and make determinations as to whether or not they continue to be the right place for them. We do not have any other specific things that we are currently contemplating. We obviously have to focus on completing the sale to West and ensuring that that partnership got off to a great start. That's a critical next step for us, and that will take some time to do that.

All right, thanks.

And Kyle, just to add to that, part of that allocation process doesn't necessarily mean that there's going to be an acquisition or divestiture per se every time. We could also reflect the reallocation of resources and capital as we've talked about earlier with respect to the increase in the Market Tech area as well as on our advantage basis. So it is really a combination of those things that we're looking at regularly.

Thank you.

Thanks. Let me just start out with the sale of the Public Relations and Digital Media Services. I assume that's all in the corporate services and that would reduce that revenue we make almost half, but from the long-term perspective that three to five year revenue growth outlook, assuming that was a lower growth business, wouldn't that make you more confident that you could bring up that low single-digit target to something a little higher? Is this a matter of time, or should we still be thinking of that business in lower single-digits?

So, I mean in terms of the sale, yes, it is in the Corporate Services segment and specifically in the Corporate Solutions part of the Corporate Services segment. In terms of the long-range outlook, we will continue to assess that as we complete the acquisition or divestiture to understand our views on the long-term growth of the remaining assets and make sure that we feel confident in our deliverance against that growth profile. But we're currently assessing that.

Okay, and maybe just listings are holding it down right now?

Well, historically, what we have said about listings in the past is that it's low single-digits because price increases and other changes are episodic and depend on the IPO environment. So we'll continue to have that as part of our assessment.

Okay, and then just when I guess in the spirit of reallocating to the broader part of the business. Can you talk about NFX? Is that still losing $0.02 a quarter? And that's been going on for a while. Is there any view of reassessing whether you want to stay in that business?

We remain very committed to the NFX business. We continue to look at ways to bring new products onto that platform. Our clients remain very focused on it and dedicated to making it work. I would say in terms of an investment from that, it's about $0.01 to $0.02 a quarter. It continues to be a modest investment, but one that we believe has a very bright long-term future for us.

And will the Bitcoin futures product be part of that potential from a launch perspective?

Yes, if we were to choose to launch a Bitcoin future, we would launch it on NFX.

Okay, thank you.

Thanks, another question on the Tech business. Where do you think this business is in the context of the potential addressable market?

That's a great question, and I would say, again, we'll probably provide a little more color and detail on that as we get into our Investor Day in March. But we definitely see an expanding addressable market. The fact that we are looking at the exchange base in itself, we've always kind of looked at that as the potential kind of $2 billion addressable market. You go into the banks, and you start to look at market infrastructure at the bank level, you've got many billions more of opportunity to go into the surveillance business. For purely in the market surveillance and market oversight space, that's actually got a large addressable market, and the exact size I don't remember, but it's certainly much larger than what we're achieving so far. But then you can also look at how we can expand that into more of the client side and into the buy-side. So it's kind of in the billions range on each of those, billions of dollars in each of those addressable markets. It's a matter of how we make sure that we execute against that and we deliver the technology and the service they need to be able to succeed.

Okay. Thank you.

Hey, good morning, everyone. Just shifting to the Markets Services side for a second, I think Michael you mentioned the options business as obviously shrinking business from a revenue perspective. I think you ran through pricing as well. Can you just flush all those comments again in particular as we think about the strong equity options activity so far this first quarter? I mean, is pricing now taking a step down and how are you looking at the run rate right now of pricing given the strong volumes?

First of all, I don't think we said that it's a shrinking business. I think it was lower in the quarter, but that's not a comment on both the future of the business. In fact there has been strong activity so far at the beginning of this year, which is in contrast to where it was at the end of last year. So from a pricing standpoint, as I mentioned in my remarks, it was a reflection of a bit of a mix shift, which was part of the reason why we saw the reduction and capture of the more volume that is going through the Philex floor, which has a different capture rate than what we've maintained. We did grow our overall market share in that business. Again, in my comments, we did talk about some changes we were making with the intention to stabilize the pricing there, so that would be the intent. We do try to optimize a combination of market share and pricing and trying to ultimately optimize the revenue.

Yes, I'd say Alex, one of the great things about having the six venues we have now, is it does allow our clients to have a lot of choices, all within the kind of umbrella of Nasdaq. If they're looking at new strategies that they're undertaking, they might say that the Philex floor is better for executing these strategies or maybe ISE or others. It allows them to have that flexibility all within Nasdaq. Each one of those then has a different fee characteristic to it. It really is a matter of how they're spreading and managing their strategies, but we get the opportunity to have all of that within our umbrella. I think that in terms of going into 2018, we will always be looking at those incremental things we can do to drive market share, maintain capture, serve our clients, emerging volume. As that comes up, you've got the potential for some volume caps. But we are confident we have a good strategy here. There's no concern within Nasdaq around how we are managing this, it's a natural way for us to manage our client relationships.

Okay. Great, thank you. And then just on the Market Technology side for a second. This might be a little bit nitpicky, sorry, but you talk about all these business wins and being a strong partner to clients and new technologies. One thing that I noticed at the end of last year is that ASX, which has been a partner since the late 90s, when someone else digital assets on something related to Blockchain. So now maybe you can flush that one out a little bit considering that you know you talk about Blockchain as a new technology a lot, and it's a strong part in the path. So it looks like a business win, and another business loss, but something that’s been new wins. So maybe you can flush that particular one out?

Sure, that's not a problem. Yes, ASX has been a great partner to us every year, and they continue to use us for new things. They've signed a new SMARTS agreement, and they continue to work with us on clearing. We are, but in the derivatives side, we've never actually been a clearing technology provider to them on the cash equity side. That's always been an internal system that they had. So clearing and settlement of cash equity has been a very internal build call test they've had, which is very different from what you'd see in other markets. What they've been trying to figure out for several years is how to upgrade or replace or advance that technology. So, they made a decision a couple of years ago to partner with Digital Asset Holdings. It was at the very beginning of the discussion around Blockchain, and we were really early in our internal work there. I think had they made a decision a year ago, perhaps it would have been a different decision. But they were making a decision right when everyone was getting started, and Digital Asset Holdings was a little further along than us. I think that at this stage, particularly with the integration of the Blockchain into the Nasdaq Financial Framework, I think people are recognizing that what we can offer is a much more integrated way to use the Blockchain end-to-end. They're working on with test a pure settlement depository solution. They still have yet to implement it. They still have work to do to get there. But we are not going to win every single bit of business from every single client. What we want, though, is for them to see us as partners, so maybe they move forward and ultimately integrate what they’ve built in the Blockchain into what we have across the rest of the platform. We still have lots of things we can do together with them.

All right, that's very helpful. Thank you.

Yes, sure.

Great. Hey, good morning, everybody. A question for you guys around eVestment first. Just a couple of clarifications. So it sounds like $23 million in run rate revenues in Q4. Is that inclusive of how many purchase price adjustments, and is that mostly going to hit you guys in the first quarter? And then just broader, it sounds like subscriptions are up nicely; where's the demand coming from? And I guess what are the areas of potential cross-selling opportunities do you see for this business now that you've added it for a few months now?

Sure. The $23 million was kind of when we run rate, it's because it doesn't include the purchase price adjustment that's just kind of within the investment financials when we look at it as a business that's what they delivered in Q4. So that doesn't include a purchase price adjustment. In terms of how that fits into the Nasdaq overall financials, there was an $11 million purchase price adjustment off that $23 as it kind of came into Nasdaq. And so going into 2018, we still have a few quarters of that purchase price adjustment to play out consistent with what we told you when we closed on the deal. So I think that you just that $23 is a run rate number. In terms of cross-selling, I think that - and not only cross-selling but to synergy opportunities from a running perspective, there are several that we are working on with them. I think some of the opportunities are the relationships they have within the institutional investment space gives us a chance to look at how we can work with them on the surveillance side, so the Sybenetix buy-side surveillance platform that we have an opportunity to use some of the relationships that eVestment has to get there. We are also integrating the Nasdaq indices into eVestment by bringing some of the investment data onto the analytics hub and making that aggregated level more available; we’re also looking at how we can leverage those relationships around selling some of our border leadership tools into the asset management space. So there are a lot of areas of collaboration and work together that we're focused on right now.

Got it. Thanks for that. And then just a quick follow-up to Michael around capital return priority. So as we think about the buyback of the incremental $500 million authorization, is the timing of that really kicks in once the sale closes to come in the back half of the year? And as you think about it, goes the implications for sort of the share count over the course of the year? So is the goal to still keep it flattish, or because of the incremental buyback, we could actually see the overall share count go down for 2018 versus 2017?

Yes, so the incremental buyback that would occur would be with the proceeds from the after-tax proceeds of the transaction, and so that could result in a reduction in the overall share count. Again, the primary use of our normal buyback would be to maintain the share count flat. In addition to that, we would use the proceeds from the transaction, which would result in a reduction in the overall shares.

I see, great. Thanks so much.

And from a timing standpoint, yes, it will start after the closing of the transaction.

All right, thanks, and good morning. Maybe one more question on just the strategic review and then the revenue outlook. If I look at 2017, you guys did around 7% total, and then I think it was 2% inorganic. And just when I think about it from where you are from a leverage standpoint, it seems like on the inorganic side that will be a little bit less, at least in 2018 and 2019. So, on the organic front, given that you're repositioning some of the businesses, where do you see that 2% to be moving higher? There's obviously some clear things that you mentioned on the listing side, and we just wanted to maybe stag some of those up?

Sure. I mean as we look at the strategic pivot and the orientation that we have around the business, clearly we see the Market Tech and Information Services businesses deriving a fair amount of growth into the business, and we want to make sure that we're positioning to continue driving growth. If we can accelerate that growth or get it to the point where it's really driving the rest of the organization, then we obviously have the opportunity to bring the whole organization up, and that's why we've been pivoting our investment dollars there. We can continue to push that revenue growth up to a more sustainable level that we’re really excited about. In terms of Market Services, the issue there is that we can control. From a market share perspective, we are feeling really good about the largest revenue pools in terms of managing those. If there is a better beta in the market in terms of higher volumes, that obviously creates a lift, but we just can't rely on that. So we are not counting on that as being a driver of growth, but it certainly could deliver it. Instead, we are focused on how we make sure. We're optimizing our markets so we can take advantage of that if and when it happens. Then on the Corporate Services side, as we said, we will be assessing the growth characteristics of that business.

And that organic growth number that you quoted is really being held down because of the reduction that we see in the volatility and activity we see in the Market Services side. We still believe that mid-single-digit growth opportunity on the description recurring revenue side is there, and with some of the pivot we're making, we're obviously trying to accelerate those as much as possible. If you break a few pieces of the business, we are seeing higher growth in the subscription recurring revenue side.

Okay, it makes sense. Thanks.

Hey, thanks. Just wondering within the context of your strategic plan, how do you guys think about the implications from the big announced Blackstone deal to acquire the Financial and Risk business from Thomson Reuters and whether that shake-up may yield any opportunities for Nasdaq to either grow faster organically or inorganically, or perhaps even look to monetize some pieces?

We are reading the news at the same time you are. So we're just trying to make sure we understand the contours of that partnership that they’ve announced and understand the implications. Thomson Reuters is a great partner to us actually in the Corporate Solutions business and in our Data business, and we would certainly expect them to continue to serve those roles to us going forward. But we're digesting the news at the same time you are right now.

Well, it's funny because they're a partner, but they're also a little bit of a competitor in some areas too. Just wondering, like the big picture if there is a jump, all like that as it happened before, does that usually yield any opportunities that might be interesting on your side?

Yes, generally speaking, we don’t view Thomson Reuters as a competitor to us. They are a great distributor to us; they partner with us. We do things like we've put our DWA data onto their platform for a web share-type model. We do a lot with them. So we don’t see them as a competitor in the same way that maybe you do. But obviously, we will look through what's happening there and understand whether there are opportunities.

Great, thanks.

Hi, good morning. Thanks for taking the question. Just wanted to follow up again on the Public Relations and Digital Media sale and having those marked as held-for-sale at that $335 million, our position price, what those adjustments might be and then the potential to take a gain in the second quarter as it closes?

So we had – last quarter when we announced that we were doing a strategic review, we put the assets on the books as being available for sale. So there's $250 million that shows on the books as the book value of that. So obviously, a $350 million less whatever cost part of the transaction and the two will net off. It’s premature for us to tell you what the final number is, but there will be some gain. We will non-GAAP that obviously because we were into through the non-GAAP earnings. Those are roughly the numbers that you will be looking at. That helps?

Yes, thank you.

Okay.

Thank you. Nasdaq's fourth quarter performance was solid. The team is definitely energized and focused on delivering for our clients and exploring opportunities that will shape who we are as an organization and what will be coming in the years to come. As you can tell, that's a big area of focus for us, and it really is an exciting time to be leading Nasdaq as the industry and technology role continue to evolve. We continue to work with the industry and other key stakeholders on a regulatory framework that we believe will provide maximum support to our clients while preserving critical investor protections and that will benefit the broader investment community and the broader economy it serves. Internally, we are focused on making sure that our clients are our priority every day and that we can bring the most innovative and creative solutions to them today and in the years to come. So thank you very much for your time today.