Nasdaq Inc - 144A (NDAQ) — Q1 2021 Earnings Call Transcript

Good morning, everyone, and thank you for joining us today to discuss Nasdaq's first quarter 2021 financial results. On the line are Adena Friedman, our CEO; Ann Dennison, our CFO; John Zecca, our Chief Legal and Regulatory Officer and other members of the management team. After prepared remarks, we will 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 would 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. I will now turn the call over to Adena.

Thank you, Ed. Good morning, everyone and thank you for joining us. My remarks today will focus on Nasdaq's first quarter 2021 financial and business performance as well as the progress we have made executing on our strategy. I'd like to begin by acknowledging how deeply proud I am of the Nasdaq team's continued commitment to our clients during this period. A full year has now passed since our global workforce began working remotely and I could not be more pleased with the first quarter results that our team has delivered to our stakeholders today. Our relentless client focus and Nasdaq's nimbleness allowed us to generate strong financial results for the first quarter of 2021. We also made important progress against our corporate strategy during the quarter with the completion of our acquisition of Verafin in February and the announced agreement to sell our U.S. Fixed Income business to Tradeweb Markets. Our performance during this period continues to underscore the resilience of Nasdaq's diversified product offering and business model as well as our ability to address the needs of our clients in a rapidly changing environment. Now I will turn to our strong financial results for the first quarter of 2021. Nasdaq delivered net revenues of $851 million, an increase of $150 million or 21% from the prior year period, driven by 17% organic growth in our Solutions segment businesses and 17% organic growth in our Market Services business. The acquisition of Verafin and the changes in FX rates drove the remainder of the growth for the business in the quarter. Across our exchange businesses, the incredibly dynamic capital markets environment during the period, combined with our strong competitive positioning, resulted in record U.S. equity and options volumes and a record quarter for new listings. I'm also extremely proud of the progress we've made to continue to grow our annualized recurring revenue or ARR which is up 21% compared to the prior year period. This was driven by our continued focus on key secular growth opportunities that are powering our Solutions segments. We're seeing rising demand across our clientele for our solutions including from institutional investors for analytics and workflow tools, from corporate clients for our ESG and IR solutions, and from financial institutions and marketplaces for technology that helps reduce financial crime. Our ARR growth was also boosted by the acquisition of Verafin. The strong operating leverage of our model was evident in the results. Our non-GAAP operating margins increased to 54%, up two percentage points compared to the prior year. As a result, we experienced a 25% increase in our non-GAAP operating income and a 31% increase in our non-GAAP diluted earnings per share in the period. Turning now to the specific highlights from the quarter, I'll begin with our foundational marketplace and corporate businesses. Our Market Services segments total net revenues of $338 million, a 20% increase from the prior year period and a new quarterly revenue record for this business. This was primarily led by higher U.S. options and cash equities trading volumes. We're also seeing an increase in demand for Trade Management Services connectivity solutions as clients adjust their capacity for a wider range of volume scenarios. Nasdaq U.S. Options market set a quarterly record of 892 million contracts traded during the period, an increase of 57%. While our U.S. equities markets set a quarterly record of 153 million shares traded, an increase of 20% year-over-year. Additionally, during the period, we entered into a definitive agreement to sell our U.S. Fixed Income business NFI to an affiliate of Tradeweb Markets. The decision to sell NFI aligns with our strategy to maximize our potential as a major technology and analytics provider to the global capital markets. We expect the transaction to close later in 2021, subject to customary closing conditions. Next, our Corporate Platform segment delivered revenues of $155 million, a 21% increase with robust contributions across each of the product areas in that business. The business is boosted by record levels of new listing activity, material contribution from Nasdaq private market following a record first quarter for private company transactions, and increased demand for our Investor Relations, Intelligence and ESG solutions. In our IR and ESG services business, we're seeing consistent and growing demand for our expanded suite of products, which has been carefully designed to help our clients measure, analyze, collaborate and take positive actions regarding their respective Investor Relations, governance, and sustainability programs. For example, in our IR Intelligence unit, we saw six new client wins from our new expanded ESG advisory offering, a more in-depth solution that has lengthened and deepened our engagement with executive leadership teams as they seek to meet the demand from institutional investors and other stakeholders for greater clarity on their ESG strategies. And we're seeing this deeper client engagement results and continued sales momentum for our consultative IR advisory service and our Nasdaq IR insight workflow solutions, which saw a combined 36% increase in sales during the quarter. In our Listing segment, Nasdaq led U.S. exchanges for IPOs during the period welcoming 275 IPOs that raised $74.4 billion, including 79 operating company IPOs and 196 SPAC IPOs. The Nasdaq stock market led U.S. Exchanges with a 69% total win rate on IPOs, including a 77% win rate among operating companies, and a 66% win rate amongst SPACs. Listing highlights from the first quarter include the IPOs of Bumble, Qualtrics, Affirm, Playtika, and Petco. During the quarter, Nasdaq listed seven of the top 10 largest IPOs by capital raised. Companies that responded positively to our virtual IPO experience during the pandemic period, and we are excited and encouraged to see our iconic Bell ceremony and IPO day experience come to life again in Times Square and in cities across the country for our unique Remote Bell ceremony. Highlights include going on the road during the quarter to Bumble in Texas and to Qualtrics in Utah. We look forward to welcoming our clients and capital markets partners safely to the Nasdaq market site for these milestone celebrations as we start to prepare for a post-pandemic period. Of course, I also want to acknowledge the strong start to the second quarter in listings, with in particular noting Nasdaq's successful direct listing of Coinbase, a global leader in infrastructure and technology for the crypto economy. The Coinbase listing represents the largest direct listing in history and was the largest ever Initial Public offering opening cross on Nasdaq. Now let me turn to our Market Technology and Investment Intelligence businesses. Our Market Technology segment delivered $100 million in revenues, including a partial period contribution from the Verafin acquisition, which we completed in February. Our annualized recurring revenue for the quarter was $416 million, a 62% increase year-over-year, including a 10% increase from our existing business and an additional $134 million representing the annualized total of Verafin's first quarter subscription revenues irrespective of the closing date, or the temporary impact of the write-down of deferred revenues. To give you more transparency on how different parts of Market Technology are operating and progressing going forward, we have started to report our revenues from this segment of our business in two groups. The first is called Marketplace Infrastructure Technology, which will comprise our solutions for the full trade lifecycle to market infrastructure operators, banks, and brokers, and non-financial market operators. And the second is called Anti Financial Crime Technology, our offerings providing surveillance, risk management, and Verafin's anti-money laundering and fraud detection solutions. As we stated in previous investor calls, there are certain areas of our Market Technology business that have been adversely impacted by the pandemic-related factors largely in the Marketplace Infrastructure Technology business. And while the environment continues to be characterized by the logistical challenges to implementations and lengthened sales cycles, the actions we took last year to respond to those dynamics are resulting in stabilize but moderated revenue growth in the near term, albeit with short-term impact to segment profitability. More importantly, our longer-term vision for Market Technology remains on track, as demonstrated by the progress we've been delivering in new sales and revenues from SaaS products and services, in particular, our Anti-Financial Crime Technology Solutions. Excluding the impact of Verafin, SaaS revenues within all of Market Technology increased 15% year-over-year. Turning to our Investment Intelligence segment, we delivered net revenues of $258 million, up $47 million or 22% from the prior year period. Overall assets under management in ETPs benchmarked to Nasdaq's indexes totaled $385 billion at the end of the quarter, an increase of 87% from the prior year period, and a new quarterly record. Additionally, trading in futures and options on futures contracts tracking Nasdaq indexes increased 31% year-over-year. I'm also pleased to see increasing adoption of some of our recent product innovations. In particular, AUM in the Invesco innovation suite built on their strong debut in the fourth quarter of 2020, and now stands at approximately $2 billion in AUM in just five months after launch, making this one of the most successful new launches for Nasdaq's Index business. Our analytics business delivered revenues of $48 million, an increase of $7 million, or 17% from the prior year period. Led by eVestment and Solovis, this business experienced strong increased growth in the first quarter due to improvement in both new users and retention compared to the prior-year period. On a sequential basis, new sales were up 23% from the fourth quarter of 2020, reflecting growth for our rebound in institutional investment industry demand following some temporary contraction in 2020, as well as increased realizations of the synergies between eVestment and Solovis as the combination helped drive 28 new accounts to Solovis in the first quarter. These results underscore our strategy to create comprehensive workflow solutions for investment managers and institutional asset owners from pre-commitment diligence to post-commitment portfolio tracking and secondary trades. Lastly, within Investment Intelligence, our market data revenues rose 11%, driven primarily by expanding international demand for our proprietary data products. As I wrap up, I’d like to reiterate that Nasdaq remains diligently focused on serving the unique needs of our clients, while we advance our strategic mission to capitalize on the opportunities that lie ahead of us. At our Investor Day in November, we articulated that our diversified business model was designed to provide us with the resiliency to drive disciplined growth across a variety of backdrops. Our recent success, especially in the first quarter, underscores the power of the Nasdaq platform and highlights that the strategy underpinning a repositioned franchise is resonating with our clients, as we continue to reallocate capital to higher growth opportunities, while maintaining leadership in our marketplace core. This focus has also resulted in many new instances of dynamic collaboration across our businesses be it new product innovations or bringing advanced technology solutions to help our clients solve major industry challenges. For example, in our Anti-Financial Crime Technology segment, we're very excited about the work that we can do together with Verafin. This includes the potential for new client opportunities given our strong relationships with Tier 1 and Tier 2 banks, as the Verafin team continues to build out their solutions to increase confidence in the global financial system. Additionally, we're pleased to support their international expansion, especially into Europe where Verafin has just landed its first client. Another great example is the intersection of our listings and index businesses. Listing the next generation of innovators, including many of the largest IPOs that have come to Nasdaq in the recent years, creates strong synergies to drive new product development in collaboration with our Index business. For example, the strength and success of our Flagship Nasdaq 100 Index, and our partnership with Invesco, laid the groundwork for a recent launch of the Invesco Innovation Suite, including the Invesco Nasdaq Next Generation 100 ETF comprised of the 101st to the 200 largest non-financial companies listed on Nasdaq, the Nasdaq Next Gen 100 Index has been one of the fastest growing ETFs that we've ever launched with a partner and includes companies such as Etsy and Roku as well as many of the fastest growing enterprise technology and healthcare companies listed on our market. As I look back at this quarter, I could not be prouder of the performance across the business. We officially celebrated Nasdaq's 50th anniversary in February, and given our rich history as a technology pioneer, I remain confident that we are moving Nasdaq in the right direction for many years to come. And with that, I'll turn it over to Ann to review our financial results in greater detail.

Thank you, Adena, and good morning, everyone. My commentary will primarily focus on our non-GAAP results and all comparisons will be to the prior year period unless otherwise noted. Reconciliations of U.S. GAAP to non-GAAP results can be found in our press release as well as in a file located in the financial section of our Investor Relations website at ir.nasdaq.com. I will start by reviewing first quarter revenue performance as shown on Page 3 of the presentation and organic revenue growth on Pages 4 and 14. The $150 million increase in reported net revenue of $851 million is the net result of organic growth of $118 million including a 17% organic increase in both Market Services and Solutions segments, a $14 million positive impact from acquisitions, and an $18 million impact from changes in FX rates. I will now review quarterly highlights within each of our reporting segments. I'll start with Investment Intelligence revenue which increased $47 million or 22%. Organic revenue growth during the period was 20%, reflecting very strong growth in our Index business, as well as strong contributions from both our market data and analytics businesses. Annualized recurring revenue or ARR was $542 million and increased 13% compared to the prior year period. AUM and ETPs licensed to Nasdaq entities rose 87% year-over-year to $385 billion, including a 25% increase from net inflows and a 62% increase from changes in market impact. On Page 19 of the presentation, you'll find our new disclosure on Net flow contribution to the year-over-year change in AUM. The segment operating margin of 65% increased one percentage point compared to the prior year period. Market Technology revenue increased $19 million or 23%. The increase reflects organic revenue growth of $3 million or 4%, $12 million from the acquisition of Verafin which closed mid-quarter, and a $4 million impact from the changes in FX rates. Excluding a temporary $7 million purchase price adjustment on deferred revenue associated with the closing of the Verafin transaction, Verafin revenues would have totaled $19 million for the partial quarter period following the February 11, 2021 close. On 510, we showed a runoff of the remaining $23 million purchase price adjustments on Verafin's deferred revenue. The $3 million organic increase in Market Tech was driven primarily by higher SaaS based Anti Financial Crime Technology revenues, in particular from our Market and Trade Surveillance products. ARR for Market Technology was $416 million in the first quarter of 2021, an increase of 62% compared to the prior year period, largely due to the Verafin acquisition. Excluding Verafin, Market Technology ARR increased 10% in the period. In addition to the new Market Technology reporting that Adena mentioned earlier, we're supplementing this with another revenue breakdown, disclosing the recurring subscription SaaS and support licensing revenues, as well as the non-recurring professional services contributions to help investors and analysts track our progress as we continue to expand the SaaS contributions across both our Market Infrastructure Technology and Anti Financial Crime Technology businesses. The segment operating margin was a negative 2%, but would have been a positive 5% when excluding the non-cash purchase price adjustment related to Verafin deferred revenue. The 5% margin is not a level that we believe reflects the potential of the business and we continue to feel optimistic about our ambition for a margin that supports Market Technology being a Rule of 40 business in 2023 and beyond. While the impact of the Verafin purchase price adjustment on deferred revenue is temporary and will be eliminated over the next four quarters, on a core basis, two main factors will drive our margin expansion over the coming years. First, our mix of SaaS subscription revenues within Market Technology is increasing significantly. Looking ahead, we expect it to continue to grow as we execute our strategy. This is critical because our SaaS businesses have approximately two to three times the average contribution margin of the on-premise solutions. Second, we accelerated hiring in certain areas of our Market Technology business in recent quarters and on a temporary basis allocated more of our existing resources to relatively low margin installation work, in particular, in the most complex on-premise clearing solutions. We expect the margin impact to gradually diminish over the coming years. Corporate Platform revenues increased $27 million, or 21%. Organic revenue growth totaled $24 million or 19%. And there was a $3 million impact from changes in FX rates. The organic revenue increase was primarily driven by higher U.S. listings revenues due to an increase in IPOs and higher Nasdaq private market revenues together with an increase in both IR and ESG advisory services revenues. Nasdaq private market revenues were about $6 million to $7 million higher than the average quarterly run rate of 2020. And while this business has averaged over 40% bigger in the last three years, we would expect to see at least $5 million in sequential decline in 2Q 2021 from NTM's particularly strong first quarter. Corporate Platform's ARR was $487 million and increased 12% compared to the prior year period. The segment operating margin of 42% increased seven percentage points compared to the prior year period and was driven by both the unusually strong activity on the Nasdaq private market, as well as from the substantial increase in the listed issuer bid. Market Services net revenues increased $57 million or 20%. The organic revenue increase was $48 million or 17% and there was a $9 million impact from changes in FX rates. The organic increase during the period primarily reflects increases in cash equities and equity derivatives net revenues due to higher industry trading volumes and an increase in Trade Management Services revenues. The segment's operating margin of 67% increased four percentage points from the prior year period, reflecting strong operating leverage on record trading revenues. Turning to Pages 9 and 14 to review expenses. Non-GAAP operating expenses increased $57 million to $393 million. The increase reflects a $24 million or 7% organic increase, an $18 million increase from the impact of acquisition, and a $15 million increase from the impact of changes in FX rates. The organic growth and expenses reflects the sum of one, relatively consistent low single-digit percentage increase related to hiring and wage inflation; two, higher compensation expense as variable performance linked compensation increase reflecting the company's outstanding growth; and three, costs related to what has been an incredibly active capital markets backdrop. For example, costs related to increasing our trading capacity, as well as marketing commitments supporting the extraordinary number of IPO wins in recent periods. Turning to Slide 10, we're narrowing our 2021 non-GAAP operating expense guidance to a range of $1.57 billion to $1.62 billion to reflect strong and broad-based organic revenue growth in the first quarter and the impact that growth had on variable expenses like performance-based compensation and marketing commitments. As we look forward to the remainder of the year, overall as performance continues to be strong, we would expect to come in at the high end of the expense guidance range. In addition, we expect the year-over-year organic growth in expenses to be elevated particularly in 2Q 2021 compared to 2Q 2020 as the prior year period had a significant reduction in travel and other in-office activity due to the onset of the pandemic, as well as lower new listing activity and less performance-based compensation due to the uncertain financial environment in 2Q 2020. Moving to operating profit and margins, non-GAAP operating income increased $93 million in the first quarter of 2021. Our non-GAAP operating margin of 54% increased two percentage points year-over-year. Net interest expense was $28 million in the first quarter of 2021, an increase of $4 million compared to the prior year period due to incremental interest expense related to the financing of the Verafin acquisition. Consistent with our reporting practice, interest expense related to acquisition financing that was incurred prior to the mid-quarter close of the transaction was excluded from non-GAAP results for this quarter. And therefore, an incremental $3 million to $4 million of Verafin related interest expense will be reflected in the second quarter results. The non-GAAP effective tax rate was 24% for the first quarter of 2021, which includes a benefit related to the vesting of certain equity awards. For the full year 2021, we still expect our non-GAAP effective tax rate to be in the range of 25% to 27% and barring any changes in the corporate tax landscape, we expect to come in near the bottom end of the range for the year. Non-GAAP net income attributable to Nasdaq for the first quarter of 2021 was $327 million, or $1.96 per diluted share, compared to $251 million, or $1.50 per diluted share in the prior year period. Turning to Slide 11, debt increased by $349 million versus 4Q 2020, primarily due to net issuances of $435 million of commercial paper used to fund a portion of the Verafin acquisition, partially offset by an $87 million decrease in the book values of our Eurobonds caused by changes in FX rates. Our total debt to EBITDA ratio ended the period at 3.4 times, a decrease from 3.5 times in the fourth quarter of 2020. During the first quarter of 2021, the company paid common stock dividends in the aggregate of $81 million and repurchased common stock in the amount of $162 million. Today, we're announcing a 10% increase in the regular quarterly dividend to $0.54 per share. Additionally, during the first quarter, the Board of Directors authorized an increase to the share repurchase program of an additional billion dollars, subject to the closing of the sale of our U.S. Fixed Income business, an acceleration of the issuance of Nasdaq common stock related to the sale. As previously communicated, we intend to use the proceeds from the sale as well as available tax benefits, working and clearing capital of the business and other sources to repurchase shares in order to offset EPS dilution. We continue to expect the sale to be temporarily 2% dilutive to non-GAAP EPS in the 12-month period following the close and we see immaterial dilution in periods thereafter. Overall, the actions taken during the first quarter support Nasdaq's accelerated evolution and allow the company to further concentrate its resources on technology, analytics and ESG opportunities. Thank you for your time, and I'll turn it back over to the operator for Q&A.

Yes. Good morning, Adena. Good morning, Ann. And I guess, congrats on the strong quarter and unique operating conditions. So my question has to do is broad, it has to do with the growth rates that we're experiencing. If you look at the overall growth rate, if you look at Corporate Platforms and Investment Intelligence, you're running three to 4X of the guidance rate. And given you still got probably the comparisons that another quarter or two were relatively stable comparisons. So when do you look at adjusting, I guess, and a lot of this is recurring revenues, as you highlighted. So when do you look at adjusting or the conservatism of the organic growth rate guidance?

Thank you. I would like to point out that we revised our outlook for medium to long-term revenue growth rates only about two quarters ago. Therefore, Rich, we still believe those growth rates are appropriate, at least based on a three to five-year timeline. That said, I agree that we are currently performing ahead of our expectations, and we are very pleased with this performance. As we continue to gain more traction across our platforms, especially in the Solutions segment, we may consider making adjustments, but for now, we are maintaining our outlook.

Okay. And they will also be increased by Verafin?

And we'll make some adjustments to that. And when we announced the Verafin acquisition, so we did make those adjustments as part of that announcement.

Okay, congrats on the strong quarter. Thank you.

Thank you. Good morning. My question is on the Market Tech segment. Ann, you might have said this, but what was the Verafin contribution of the revenues in the quarter? And then, as we look ahead, as you talk about the margin and reiterating the long-term outlook for the margin, could you help us in the short-term as you mentioned increased costs plus the backdrop from a revenue environment? Are we looking at, what are we looking forward to see this margin march higher? Is it kind of the normalization of expenses plus the revenue or could we just see the margins expand without based on where things sit and kind of the normal progression of the ARR and other portions of the business?

Sure. Regarding your first question about Verafin's contribution, we reported $12 million in revenues from Verafin for the partial quarter, which included a $7 million deferred revenue write-down. Therefore, the gross revenue for that period was $19 million, with the deal closing on February 11. Concerning your question about Market Tech margins, looking ahead to 2023, we aim to achieve the Rule of 40 for overall Market Tech primarily through revenue growth, including the integration of Verafin. Additionally, we plan to expand our SaaS offerings, which have shown higher contribution margins. As we continue to grow in that area, we anticipate a positive impact on the margins. However, we do have some additional costs to manage as we handle larger, more complex projects; we expect these costs to gradually decrease over time. Combining these elements, we believe we can achieve the Rule of 40 in 2023, and it's important to emphasize our confidence in the prospects of this business and our ability to succeed.

Yes, hi, good morning, everyone. On the Listings business. Can you just describe a little bit more what happened in the first quarter? I know you dimensionalize the private market impact, I think $7 million but even without that, it was still a very, very strong quarter on a sequential basis. And I know you highlighted SPACs in particular and I know it was a very strong SPAC quarter. But usually the initial listing fees could amortize over many years. So just wondering is the accounting difference on SPAC listings or anything that that you could point out to kind of bridge the gap and how sustainable that should be going forward given that some of the SPAC enthusiasm seems to be waning a little bit? Thanks.

Thanks, Alex. When we examine the revenue performance in the Listings business, it's built upon three strong years of new listings, leading to a new annualized recurring rate of Listing revenue. In 2019, we had 189 IPOs, followed by over 314 in 2020, and this year, we've already seen 275 IPOs. You are correct that SPAC Listings operate differently; they typically enter the capital market looking for the lowest possible fees. Consequently, when we analyze overall SPAC annual listing revenue, it accounts for only about 5% of our total listing revenues, which isn’t a significant contribution. When SPACs merge with companies, this allows us to bring those companies to Nasdaq as operating entities, which tends to yield a higher fee rate. There is considerable opportunity to enhance our revenue from these combinations, and the risk remains limited if SPACs cannot find companies to merge with. Overall, the compounding effect of multiple years of winning a majority of IPOs, particularly among operating company IPOs, has created a favorable environment for us to introduce many new companies to the market. Additionally, we had 32 new listings in the Nordics during the first quarter, which bucks the trend in Europe, showing continued strength in our Nordics business.

So Adena or Ann, back on Market Tech. So just looking at the Anti Fin Crime bucket, including the four Verafin contribution that you called out, that looks stronger than what we expected just looking at that $46 million bucket for the quarter. Could you talk about either lumpiness or seasonal factors driving that during the quarter, is it anything that we should be thinking about or even as we think about the rest of the year. And related to that, you've noted that you continue to see a little bit of pressure within the Market Tech bucket as a result of the pandemic that hasn't entirely gone away. So just any color as to if I think about the Legacy business on X of Verafin, thinking about the 8% to 11% organic growth rate, if you think about 2021, is that still a feasible and reasonable kind of growth rate? Again, I know it's more of a medium-term rate. So if we think about 2021, when we think about the legacy business, is that 8% to 11% still an achievable rate given some of the headwinds and pressures that you're seeing in the business? Thanks a lot.

Certainly. On the Anti Financial Crimes front, it is primarily a SaaS-based business. We include surveillance solutions in the Anti Financial Crime Sub Segment. While some of these are still on-premises, they usually generate long-term licensed revenues with minimal project-related expenses since these services are more standardized. We also have a SaaS component for our trading firm's surveillance, and then risk management solutions for both markets and broker dealers, which include a mix of on-prem and SaaS options. Lastly, Verafin operates entirely as a SaaS business with very low professional fees. Overall, what you are seeing in recent quarters reflects the recurring potential of this business. We reported a 10% increase in our Anti Financial Crime sector, excluding Verafin. There remains strong demand for all these solutions. However, the growth rate for Market Tech without Verafin has been significantly affected by the pandemic, which continues to limit our client visits. Many of our sales involve substantial commitments from new clients, and building those relationships has been challenging without in-person interactions. Existing clients focused on managing high volumes in a dynamic capital market last year, but as we move into 2021, we are engaging in more meaningful discussions with them about advancing their technology in the long run. While we anticipate that short-term growth in this sector will be moderated, we maintain our medium to long-term projections for the overall business, as we believe in its recovery.

Hi, good morning, and thanks for taking the question. Adena, the organic growth has been great in some areas have benefited there from the favorable market backdrop that you mentioned for areas like Index and Listing. But is that moderate when you get past COVID. Do you highlight some of the areas maybe negatively impacted by COVID, because you know over the last couple of quarters and talking about Tech that could have financial upside as to a more normal level and maybe offset some of those areas that eventually normalize at some point? Thanks.

Certainly. There are two areas we've focused on where we're beginning to see a recovery, particularly in eVestment, which faced significant impacts in 2020. Together with Solovis, both the Investment Management community and asset owners were navigating considerable changes in a dynamic environment, leading to uncertainty about the sustainability of market trends. This resulted in a pullback from purchasing analytical tools. However, as we noted in the first quarter, we have maintained our conversations and relationships. Our shift to an all-in pricing model in 2019 has played a key role in helping us retain clients in 2020. Now, heading into 2021, we've observed that investment managers and asset owners are re-entering the market to effectively manage their dynamic portfolios. Additionally, we've made strides in offering a more comprehensive solution for asset owners through Solovis and eVestment. We're seeing a positive upswing as we enter 2021 after a challenging 2020. On the Market Tech side, particularly in market infrastructure technology, we've also experienced impacts. Furthermore, the governance platform solutions have faced challenges as corporations dealt with downturns, resulting in a tougher sales environment last year. We're starting to see recovery in that area as well, and we anticipate more progress in 2021 and beyond.

Great, thank you. Can you update us on how you're feeling about Verafin's backlog and outlook now that the acquisition is closed? And I believe this was a business that was growing around 30% prior to the acquisition, and is that kind of like a good bogey to be thinking about going forward?

I can say that we ended 2020 very much on plan and started 2021 very much on plan. So we're very pleased that I mean the business it's a great business, but it's also just a great team. And they're extremely focused. And I think that they're focused on the right path forward. So they're very much on plan with what we talked about when we announced the acquisition.

All right. Great, thanks. Good morning, folks. Maybe also just on Verafin. Another one, just in terms of that revenue contribution run rate, I think you said, Ann, $19 million pro forma with the revenue recognition. So given that closed early to mid-February, should we be thinking about a core revenue number around that $35 million area for the second quarter just trying to gauge sort of the volatility or stability of that revenue stream. And then, Adena, if you talk about maybe thoughts around revenue synergies with being able to introduce the Verafin product and teams to the Tier 1 and Tier 2 banks, I know that's a long timeframe that will evolve over time, but maybe some thoughts about how you think that might progress and add to the Verafin revenue base?

Sure, go ahead Ann.

Sure. I'll begin with your first question, Brian. Regarding Verafin, as we shared during the announcement of the transaction, we estimated about $140 million in gross revenues before accounting for the purchase price adjustment. We have provided details on how this adjustment will unfold throughout the year. To arrive at our expectations, you can take that $140 million, subtract the purchase price adjustment, and prorate that amount based on the February 11 close date.

for 2021.

For 2021, yes, okay.

Okay. In terms of the long-term outlook, I can say that we have made an excellent start in collaborating with them on client introductions and understanding their sales focus. They are also committed to investing in research and development, as well as in the business, to establish ourselves as the leading provider of Anti-Financial Crime Technology for banks of all sizes, from the largest to the smallest. As we mentioned at the announcement of the deal and at the closing, we will work with them to support their investments in certain technology capabilities that we believe will enhance their offerings as we approach Tier 1 and Tier 2 banks. We have a fantastic solution for Tier 2 banks and, as you noted, this is a multiyear strategy. There has been significant demand from both Tier 1 and Tier 2 banks to learn about our solution and its functionalities. We are successfully entering Tier 2 banks with point solution sales that we believe will be beneficial for us to grow. Additionally, Verafin has signed its first client to assist with fraud detection in a European bank. We are excited about the opportunities emerging right after the acquisition, and we see many chances to collaborate with them to support their long-term growth.

It sounds great. Really good progress. Yes, thank you.

All right. Thanks for taking my question. And I wanted to carry on with the topic of Verafin here, just because I think you've mentioned before that you fully expect at some point to be able to accelerate the revenue growth as you penetrate Tier 1 to 2, but I understood that it was a case of getting the product right for a particular market. And I'm interested that you just mentioned that Verafin have signed their first European Bank, it wasn't long ago, where you're still trying to tweak that product for the right market. So could you give us a sense of where you are in terms of the product readiness for Tier 1 and Tier 2 as it stands today?

Yes. I think that they certainly have seen really nice demand pickup in the what I would say $50 billion plus in assets, kind of banks that they continue to penetrate that that sector quite successfully. And they have an all-in full solution that really supports kind of a full platform for those banks. As they've been going in and starting to engage with $100 billion and plus type of banks, and really the large, the very large banks, they are finding opportunities to come in with a specific solution like a part of their offering. And that that they do have part of their offerings are quite relevant to the needs of those banks in terms of what I would call more of a like point solutions approach. So what we want to be able to do is become that all-in platform partner to those banks over time. So there may be some shorter term opportunities like we have at the European company to have a nice specific sale of a specific capability now that we're very, very good at. But then overtime I think that the real revenue opportunity will come if we can really build that out to become more of a holistic platform partner. So I just wanted to know, it's obviously very early days, there's a lot of enthusiasm, a great sense of partnership. And the ability for us to open doors but it will be it'll take time for us to get the solution and investment that we want to make in the business so that we can get that solution to become the preeminent platform across the entire industry.

Hi, good morning. We've seen a steady increase in equity trading in dark markets in off exchange. Does moving volume back on exchange rank in your priorities when communicating with the new leadership at the SEC? And if so what tools and approaches do you think make the most sense for regulators to consider should moving trading from the dark markets to the lid emerge as a top priority for them?

We're excited to welcome Gary Gensler as the new Chairman. Having someone in this role who truly understands markets and market structure is beneficial. I believe one of the SEC's priorities will be addressing retail trading trends, especially following recent hearings in Washington. They are already preparing a discussion paper to gather feedback from the industry. A significant part of this discussion will focus on dark trading, as approximately 40% to 50% of trading in the U.S. occurs off-exchange, primarily involving retail orders. This means that retail orders are not being presented on lit exchanges, impacting price discovery. We need to consider whether we have an accurate reflection of price discovery if only half of the market is visible. This is an area of focus for us, among others, as we explore ongoing improvements to market structure. The dynamic nature of this industry is what keeps me engaged, and it's fascinating to observe the evolution of the markets. As these markets change, we believe it is important to examine settlement cycles with the goal of potentially reducing the cycle time, and to provide clearer insights into margin obligations. Additionally, we see a need for better short sale disclosure, as the current setup creates an imbalance where long positions are transparent but short positions often are not. Lastly, we want to improve the competitive landscape between exchanges and off-exchange players in a natural way. This includes discussions around minimum tick sizes and trade sizes. These, among other matters, are areas we hope the SEC will consider.

Good morning and thank you for taking my question. I want to go back to Nasdaq private market. Could you please talk about how sustainable the activity is in NPM and then after Coinbase directly stating, how should we think about the role of NPM in the whole crypto space? Thank you.

NPM had an exceptional quarter, and we also had a very strong year overall in NPM last year. The performance really surged in the second half of the year; the first half was notably slow, especially during the pandemic. However, in the second half, we launched several programs that revived activity, leading to a strong fourth quarter and a solid start to this year. It's important to note that more private companies are starting to view NPM as an effective solution for managing their long-term liquidity needs for employees and investors, allowing them to avoid going public immediately or to prepare for a public listing. For example, Coinbase was able to secure some liquidity in the private markets prior to its direct listing, which positioned them well and provided a solid investor base for a sustainable listing. This trend indicates that companies are increasingly using private markets as a stepping stone to direct listings, which is a positive signal for our business and the relationships we maintain with our clients. Regarding the crypto sector, it's uncertain whether more crypto-focused companies will enter the public markets following Coinbase. If they pursue that route, the Nasdaq Private Market would be an ideal option for managing their private liquidity before an IPO.

Hi, thanks for taking my question. Maybe just a follow-up related to crypto, we're seeing a significant increase in institutional adoption and some large traditional financial players stepping into the space for the first time. I know, I think your technology is powering some crypto exchanges today. But just curious to hear whether you think there's an opportunity to eventually more directly participate in that space?

Thank you. I view the cryptocurrency markets and the broader crypto economy as being in a very early stage. This is positive because we are witnessing an elegant framework emerging within the ecosystem, particularly with Blockchain technology, which is beginning to yield interesting and practical applications. Initially focused on retail, we are now seeing institutional players acknowledge that this framework could become integral to mainstream commerce. This aligns with a classic product lifecycle, transitioning from early experimentation to the emergence of more concentrated, though still early-stage, companies. This timing allows us to strategize our path forward, as our initial engagement in crypto has centered on our technology. We have established partnerships with various crypto markets to address surveillance and technological needs, which are crucial for ensuring fairness across the markets. Our systems are built for scalability, which provides us with a competitive edge. Additionally, we launched a Crypto Index with a partner, which we turned into investable products outside the U.S., and we aim to bring this into the U.S. with another partner in the coming months. We have some intriguing opportunities to engage in the crypto space, but we are also assessing our long-term role and how the markets may evolve. There are definitely some significant players, like Coinbase, making strides in shaping future marketplaces.

Great, good morning. I had a question about ESG. Within your complex there, put up good 8% growth here, that seems to be above your targeted rate for corporate platforms. I know that's kind of overshadowed now by the Listing services piece of it. But could you give maybe an outlook on ESG and how that's developing within Nasdaq and then maybe how that varies by geography as well, and what you would expect maybe here in the U.S. over time? Thanks.

Sure. Yes, we're really encouraged by what we've been doing to develop at our ESG solutions. And again, it is early days. At the Investor Day, we gave a view that we would hope that these types of new ESG services that we've launched and products that we've launched would generate at least $50 million over five years. And so $50 million a year, five years later, sure, if you're clear. But I think that we obviously are quite encouraged by the fact that we've had some really great adoption of our ESG solutions by companies. We also have actually incorporated our ESG solutions into our IPO package now. So we'll get more and more companies adopting them and that gives us longer-term revenue opportunity with them as well. And we do obviously think that this is a trend that is here today. It's something that we believe will drive a lot of corporate decision making in the future, and we want to be that partner to the corporates to help them navigate this landscape. The business that we have launched and the services we offer are as popular in the U.S. as they are in Europe. So we already have, I would say we've had really good adoption of the products in the U.S. But in Europe we've had, it's more mature. And so there's more. We've had more sustainable bond listings and other capital listings that also we support in Europe, in addition to helping our clients through standard setting and reporting, etc. So I think that it's an interesting dynamic space. And it's one we're quite encouraged by.

Great. Thank you. And thank you very much for your time today. We're very pleased to see our businesses delivering strong organic revenue growth in the quarter. You're guided by our strategic direction. We have a clear focus for the remainder of 2021, as we reimagine markets to realize the potential of tomorrow. I look forward to updating all of you on our progress in the months to come and thank you and have a great day.