Nasdaq Inc - 144A (NDAQ) — Q1 2022 Earnings Call Transcript

Good morning, everyone, and thank you for joining us today to discuss Nasdaq's first quarter 2022 financial results. On the line are Adena Friedman, our CEO; Ann Dennison, our CFO; John Zecca, our Chief Legal Risk and Regulatory Officer; and other members of the management team. After prepared remarks, we'll open up the line to Q&A. The press release and presentation are on our website, and we intend to use the website as a means of disclosing material, nonpublic information and complying with disclosure obligations under SEC regulation update. 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, and 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'll now turn the call over to Adena.

Thank you, Ed, and good morning, everyone, and thank you for joining us. I'd like to begin my remarks today by addressing the current market landscape. As I've noted in past calls, the Nasdaq team has become familiar with how unpredictable today's operating environment can be. The first quarter of 2022 was certainly no different, given the dynamic geopolitical and economic factors we experienced during the period. The war in Ukraine is a terrible tragedy, and we stand with the greater business community urgently calling for peace. Nasdaq has a proud and long-standing position in Europe, which includes seven markets we operate across the Nordic and Baltic countries, specifically Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, and Sweden. We've been extremely diligent in monitoring the threat environment in Europe and across our global operations to protect our employees and to ensure the resiliency of our markets and client solutions. Our revenue exposure to Russian clients was minimal, and we remain committed to ensuring full compliance with all relevant sanctions. In addition, our global workforce is highly engaged in humanitarian and philanthropic efforts to support the needs of those impacted by the senseless war. It fills me with immense pride to see the outpouring of support across our employee base. Regarding the backdrop we are operating against, our corporate clients and our investor clients are navigating through a very dynamic environment, where strong economic growth has been accompanied with significant inflation, continued supply chain and labor shortage challenges, and increasing geopolitical impacts. This environment creates volatility in markets, which tends to be a volume driver, and we have continued to experience strong volumes across our U.S. and European markets. It also creates an uncertain landscape for investors to navigate, resulting in a slowdown in capital raising activities, including IPOs. And depending on the way the markets are moving, it creates interesting dynamics for our index business. This quarter, the drop in market cap was offset partially by inflows into our index products and strong index futures volumes. Looking beyond the direct market impacts, because we offer solutions that help our clients navigate through these uncertain times, it's actually increased our client engagement in three key areas where we have secular growth. Our bank clients are managing increasingly complex geopolitical risks, which results in strong demand for advanced anti-financial crime solutions, which we offer with Verafin. Asset owners, including pensions, sovereign wealth funds, and endowments, are making quick asset allocation changes and must manage their portfolios very carefully, which increases their reliance on our eVestment and Solovis offerings. On the corporate side, our clients are navigating through a dynamic ESG environment, which drives demand for our ESG advisory and reporting solutions. Overall, our diversified business model gives us the means to manage successfully in this environment, recognizing, of course, that there are a lot of different forces at play. And in that context, let me briefly address the inflation-related pressures, which are certainly factors we are navigating as is the broader corporate community. On the revenue side, we are fortunate to benefit from a highly diversified revenue mix based on providing mission-critical solutions that support our clients and the broader financial system around the world. We take a long-term approach to value creation for our shareholders in the context of serving our clients, and we will continue to manage that balance thoughtfully. In addition, we are actively managing the evolution of inflationary pressures across our expense base. Our current expense guidance reflects the near-term actions we have taken to address the challenges of recruiting and retaining a highly skilled team in today's economy, and we'll continue to monitor the situation over time. Our team's focus on secular opportunities to drive organic growth as well as our business model's reliance on recurring revenue components has enabled Nasdaq to continue our track record of growth as we execute against our longer-term objectives. The record net revenue we achieved in the quarter against this very dynamic backdrop illustrates the strength of Nasdaq's business model. Next, I'd like to take a brief moment to thank two of our senior leaders for their years of impactful contributions to Nasdaq following the announcements that they will be moving on to new chapters in their lives. First, I want to congratulate Lars Ottersgard for his 16 years of leading our Market Technology business. During his tenure, he led a dramatic expansion in the capabilities and client network for the business and helped advance our ongoing transition to a more scalable SaaS-focused orientation. I also want to thank Lauren Dillard, who in her three years at Nasdaq delivered tremendous impact in strategically repositioning the Investment Intelligence business that now features a majority of revenue contribution from higher growth index and analytics products. We're incredibly excited about the strong successors we announced during the quarter for the market technology and Investment and Intelligence segments. Specifically, Jamie King, who joined us from Verafin, will lead the anti-financial crime technology business. Roland Chai, who joined Nasdaq in 2020, will lead the market infrastructure technology business. Those two businesses will continue to roll out to form the Market Technology segment. Oliver Albers, a long-standing Nasdaq executive, will lead our Investment Intelligence segment. All three are respected leaders in their fields with deep industry expertise and a proven track record of success. Let's now turn to our results. I'm very pleased to report Nasdaq's strong financial performance for the first quarter of 2022. We achieved a record $892 million in net revenues, a 5% increase compared to what was itself a very strong prior year period when the company previously set a quarterly record on trading revenues. Our total annualized recurring revenue, or ARR, increased 9% to $1.91 billion. Annualized SaaS revenues totaled $655 million in the first quarter of 2022, representing 34% of our total company ARR, reflecting particularly strong growth in our anti-financial crime and investment analytics businesses. Our recurring revenues and their consistent growth provide a powerful starting point for our overall performance, but we also delivered strong results across both index licensing and trading revenues. This solid start to the year positions us well to address the geopolitical and economic uncertainties that may persist as we move forward in 2022. Turning next to specific highlights from our business segments. Our Solutions segment businesses delivered combined total revenue of $576 million in the first quarter, a 15% increase from the prior year period, driven from several of our businesses, including our anti-financial crime offerings, our index and investment analytics offerings; the expansion of our listed issuer base as well as strong demand for our IR and ESG services. Excluding FX and the partial quarter impact of the Verafin acquisition, we achieved organic growth of 13% across our solutions segments. In our Investment Intelligence segment, we delivered $284 million in total net revenue in the first quarter, an 11% increase from the prior year period, with contributions across the business during the quarter. Revenue in our market data business grew by 2% versus the prior year period. Our strategy for geographic expansion, particularly in the APAC region, remains strong. In our Index business, we saw revenue growth of $20 million or 20% versus the prior year period, driven principally by growth in ETP assets, which saw positive net flows of $75 billion over the last 12 months, including meaningful inflows during the especially volatile first quarter itself. We launched 55 ETFs tracking Nasdaq indexes over the last 12 months, which in turn accumulated $2.5 billion in assets through the end of the quarter. Notable launches outside the U.S. include the Mara Philex Semiconductor Index ETP and the Samsung Nasdaq 100 ETP. In addition, we created and launched the first index representing the pricing of carbon removal credits during the first quarter based on our activity on our Puro Earth carbon removal marketplace. Moving from the asset-based index revenues to transactional, the volumes of Nasdaq licensed index futures were particularly strong with a record of over 147 million future contracts tied to the Nasdaq 100 traded in the quarter. And in our Investment Analytics business, revenues grew 13% from the prior year period driven by the sequential impact of strong sales across asset owners, asset managers, and private markets throughout 2021. We are excited about the appointment of Oliver Albers to the Executive Vice President of Investment Intelligence. As a 20-plus year veteran of Nasdaq, Oliver is an experienced, results-oriented leader, who is instrumental in supporting Lauren in strategically repositioning Nasdaq's Investment Intelligence segment into the higher growth, more technology-enabled business you see today. Turning next to our Market Technology segment. We delivered $124 million in total net revenues in the first quarter, a 24% increase from the prior year period. This is primarily driven by the inclusion of revenues from Verafin in our results year-over-year and more broadly, continued organic growth in the broader anti-financial crime technology business. Our anti-financial crime technology business had a very strong first quarter, achieving a 71% increase in revenues versus the prior year period, partially driven by the partial quarter inclusion of Verafin in the prior year period, the phasing out of revenue write-down associated with the acquisition, as well as by strong organic growth with the majority of that coming from the fraud and anti-money laundering solutions, which we call FRAML Solutions. The growth was driven by both new sales and expanded relationships within our existing client base. We have made meaningful progress in the last twelve months on our objective of helping Verafin expand its client franchise into larger Tier 1 and Tier 2 banks as well as to innovative fintech companies, all of which account for half of the industry spend. Since we closed on the acquisition, we have signed 10 new fintech clients and 2 new Tier 1 and Tier 2 banks with several ports of concepts currently underway at major Tier 1 banks. We also launched our first digital assets module for traditional banks and virtual asset service providers, including crypto exchanges, to detect and investigate fraud and money laundering within digital wallets and in transactions between traditional fiat and digital currencies. We are committed to supporting the financial ecosystem through its digital transformation by innovating quickly to deliver digital-ready versions of our advanced crime-fighting solutions. And as a recent example, we responded quickly to the Russian invasion of Ukraine by expanding our sanctions product to include new sanctions agents for our bank clients. Verafin is meeting the high expectations we set at the time of the acquisition, while at the same time, the broader Nasdaq team is learning from Verafin in important ways. Their operational expertise as an all-SaaS provider is invaluable to us as we build upon and improve our effectiveness in offering our expanded suite of other SaaS offerings. By bringing together all of Nasdaq's anti-financial crime solutions, including Verafin and our market and trade surveillance solutions under Jamie King, the CEO and Co-Founder of Verafin, we have an incredible opportunity to maximize those cross-product synergies. We're excited to have Jamie as the new Executive Vice President of Nasdaq's ASC business as he leads the future of Nasdaq's high-impact, high-growth solutions that focus on fighting crime and ensuring the integrity of the financial industry. Within our market infrastructure technology business, the first quarter results continue to reflect the revenue headwinds that we have communicated to investors over the past two years since COVID began. As we discussed on prior calls, these headwinds have stemmed from factors that include logistical challenges the pandemic presented to sales, installation, and change request work that often occurred on-site, as well as some specific client delivery challenges in the post-trade space. We are pleased that two of our post-trade clients successfully went live in the beginning of the second quarter with the first phase of their implementations, and we continue to make good progress in all of our major implementation projects. As I said last quarter, as we re-engage in person with our clients, we're starting to see these revenue headwinds recede. With the healthy order intake trends in both 2021 and early 2022, we entered 2022 with an opportunity to improve the organic growth of our market infrastructure solutions as we progress through the year and into 2023. We have appointed Roland Chi as the new Executive Vice President and leader of our Market Infrastructure Technology business. Roland has been serving as our Chief Risk Officer. And just as importantly, he spent more than a decade leading key technology product areas at several of the world's leading exchange businesses and was, in fact, the customer himself of Nasdaq's marketplace technology. Roland has very specific mandates to strengthen, deepen and progress our client relationships and to continue to innovate across our product suite. I'm excited about this transition as it comes at a time when Nasdaq has never had more to offer to our technology clients, including our next-generation, cloud-native trade life cycle solutions, a newly built cloud-based trading risk management solution, as well as solutions to meet the needs of digital asset marketplaces. Moving to our foundational marketplace businesses, our Market Services segment delivered net revenues of $315 million during the first quarter, its second-highest quarter ever, second only to Q1 2021. Our market share in U.S. equity saw year-over-year and sequential quarterly improvement, which resulted from an industry uptick in on-exchange trading as well as early success increasing the demand for some of our unique functionalities. Equity derivatives set a new quarterly net revenue high, up 6%, maintaining our market share in U.S. options in a very busy period while realizing improved capture. Our U.S. options business saw an average daily number of contracts traded of 12.8 million during the first quarter and led exchanges with a 32% market share. And in our Nordic and Baltic markets, equities markets saw robust volumes during the period, with the value of shares traded setting a decade high of EUR 289 billion. Finally, our Corporate Platform segment delivered record net revenue of $168 million in the first quarter, a 15% increase from the prior year period, driven primarily by our continued leadership in new listings across our U.S. and European markets as well as growth in demand for our IR and ESG services. We saw particularly strong growth in Nasdaq IR Insight and IR advisory offerings as well as across our Government Solutions suite, including our Board meeting management and advisory offerings and Nasdaq One Report, our ESG reporting workflow solution. Despite the slower start to the year for IPOs, Nasdaq continued its competitive leadership in attracting 70 total listings in the U.S. during the quarter, raising $9 billion for an 86% win rate. We listed 100% of all operating company IPOs during the quarter and 80% of stack listings. In Europe, our Nordic, Baltic, and First North exchanges welcomed 19 new listings. As I wrap up, I will summarize by saying that our first quarter results demonstrate how Nasdaq's performance-driven culture and diversified business model enables the company to perform well in different data-driven environments. As a result, we will continue to make focused investments in our businesses to support sustainable growth and expansion of our impact on the financial industry while also positioning us well as we work towards our medium-term goals. We remain relentlessly focused on advancing our strategy, and we believe that Nasdaq is well-positioned to address the geopolitical and economic uncertainties that may persist as we move forward in 2022. With that, I'll now turn the call over to Ann to review the financial details.

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 Financials section of our Investor Relations website at ir.nasdaq.com. I will start by reviewing first quarter 2022 performance beginning on Slide 11 of the presentation. The 5% increase in reported net revenue of $892 million is the net result of organic growth of 6%, including a 13% organic increase in the Solutions segment, partially offset by a 4% organic decrease in Market Services compared to a record net revenue high in the first quarter of 2021, and the contribution from Verafin as well as impact from divestitures, partially offset by the negative impact from changes in FX rates. Moving to operating profit and margins. Non-GAAP operating income increased 1%, while the non-GAAP operating margin of 52% decreased 2 percentage points compared to the prior year period. Non-GAAP net income attributable to Nasdaq was $329 million or $1.97 per diluted share, compared to $327 million or $1.96 per diluted share in the prior year period. Turning to Slide 12. As Adena mentioned earlier, ARR totaled $1.19 billion, an increase of 9% from the prior year period, while annualized SaaS revenues totaled $655 million, an increase of 12%. I will now review quarterly segment results on Slides 13 through 16. Starting with Market Technology, revenue increased $24 million or 24%. The increase primarily reflects a positive $18 million impact from the acquisition of Verafin, which occurred near the middle of the first quarter of 2021, and $9 million in organic revenue growth, led by our anti-financial crime technology business. ARR for Market Technology totaled $435 million, an increase of 5% compared to the prior year period. The Market Technology segment operating margin was 3% in the period, well below our objectives. Focusing on the Market Infrastructure Technology business, results continue to reflect the headwinds from logistical challenges the pandemic presented as well as some specific client delivery challenges in the post-trade space. Investment Intelligence revenue increased $28 million or 11%, reflecting organic revenue growth of $30 million. Organic revenue growth during the period primarily reflects strong growth in our index and analytics businesses as well as a positive contribution from Market Data. ARR was $570 million, an increase of 5% compared to the prior year period. AUM ETPs licensed to Nasdaq indices increased 4% compared to the prior year period to $401 million. The Investment Intelligence segment operating margin of 65% is unchanged from the prior year period. Corporate Platforms revenues increased $22 million or 15%, including 17% organic growth. The increase was primarily driven by higher U.S. listings revenues due to the 17% expansion in our listed U.S. corporate issuer base as well as higher adoption across the breadth of Investor Relations, and newer ESG advisory and reporting offerings. Corporate Platforms ARR was $576 million and increased 18% compared to the prior year period. The Corporate Platform segment operating margin of 45% increased 5 percentage points compared to the prior year period and was primarily driven by growth in the listed issuer base. Market Services net revenues decreased $19 million or 6%. The organic revenue decrease was $13 million or 4%, and there was a $6 million negative impact from changes in FX rates. The organic decrease primarily reflects lower U.S. equities industry trading volumes compared to the record first quarter 2021 period as well as lower capture in U.S. equities. The segment operating margin of 63% decreased 5 percentage points compared to the very strong prior year period given the lower trading net revenues and the impact of higher professional fees. Turning to Page 17 to review both expenses and guidance. Non-GAAP operating expenses increased $35 million to $428 million. The increase reflects a $36 million or 9% organic increase and a $9 million increase from the net impact of acquisitions and divestitures, partially offset by a $10 million decrease from the impact of changes in FX rates. The organic expense increase is driven by higher compensation and benefits expense, reflecting our continued investment in new employees to drive growth. Inflationary pressures on compensation and performance-linked compensation, which continues to reflect the very strong growth across our solutions segment. We intend to continue investing thoughtfully to maximize the benefits of our expanded customer base and the increasing breadth of capabilities we have developed to expand each relationship. We are revising our 2022 non-GAAP operating expense guidance to a range of $1.7 billion to $1.76 billion, essentially lifting the bottom end of the existing range a bit to account for the very strong organic growth in the Solutions segment businesses to start the year. Turning to Slide 19. Debt increased by $68 million versus 4Q '21, primarily due to issuance the issuance of $550 million of new 3.95% senior unsecured notes due March 2052, partially offset by a net payment of $420 million of commercial paper and a $55 million decrease in eurobond book values caused by a weaker euro. Our total debt to trailing 12 months non-GAAP EBITDA ratio ended the period at 3.1x, unchanged from the fourth quarter of 2021. In April, we used proceeds from the notes offering completed in the first quarter to retire $500 million of bonds maturing in June of 2024. Now let me take a moment to update you on the dividend stock repurchases and our intention to split our stock. During the first quarter of '22, the company repurchased $467 million in shares, including $325 million related to the previously disclosed accelerated share repurchase program discussed on the 4Q call. Additionally, we are announcing today an 11% increase in the dividend to $0.60 per share. The company has also begun the process of obtaining certain shareholder and SEC approvals to facilitate a 3-for-1 stock split in the form of a stock dividend. If such approvals are received, we expect the split to be completed in the third quarter of 2022. In closing, Nasdaq's first quarter results reflect a continuation of the company's ability to consistently perform well across a wide range of operating environments. We delivered record quarterly revenues, 13% organic revenue growth in the Solutions segment, and a 52% non-GAAP operating margin, which we see as an incredibly strong start to 2022 that we can build upon moving forward. So thank you for your time, and I'll turn it back over to the operator for Q&A.

On market technology, you get some great growth in the anti-financial crime segment. So I guess the question is can you update us on how the new environment with sanctions, etc. Could that be a tailwind? And then staying within the segment, you had market infrastructure technology fall off. And I understand the headwind from the one single project. But even quarter-to-quarter, it fell off. So could you give us an update? I know you mentioned the pandemic-related impacts. But quarter-to-quarter, it seemed like it went $59 million to $52 million as well.

Sure. Let me start with that and then we can discuss anti-fincrime. The fourth quarter tends to be a high season for us in market infrastructure technology every year due to numerous change requests and projects that we aim to complete during this time, allowing us to recognize the revenue in that quarter. However, looking at the market infrastructure technology business overall, we are still experiencing the effects of the pandemic, specifically regarding the level of client engagement we had in 2020 and part of 2021. I believe we are beginning to see a recovery in order intakes and client interactions. Our team, including Roland, has been traveling to meet our clients, which is helping us return to a normal level of engagement. We are also making good progress with post-trade implementations; two of our clients have gone live with the initial phases. This advancement helps us move past those projects and allocate resources to other initiatives while continuing to progress on significant implementations across the organization. We feel we're getting back to a more regular rhythm, but it will take time for that to translate into revenue, which this quarter reflects. Regarding the anti-fincrime business, the current sanctions and general risks in the financial system are indeed increasing interest in advanced anti-fincrime solutions among large banks. This is why we have initiated several proofs of concept with banks, with more in the near-term pipeline, to help them understand how we can effectively address their challenges. Our team has an impressive weekly release cycle, allowing us to quickly update our sanction module in response to new sanctions and roll that out to our clients now. I hope this provides the insights you were looking for.

Yes, it's very helpful. Adena, to follow up on what you mentioned on CNBC about the listings pipeline, I didn't catch all the details, but could you provide us with an update? I understand that IPOs have slowed down, but it seems like you have a backlog.

Yes, we definitely have a backlog. Currently, there are 270 active S-1 filings that are ready to go to Nasdaq, compared to 222 filings at the same time last year. This indicates strong interest from companies looking to enter the public markets. We are engaging with some significant IPO opportunities, but those companies want to ensure that the market conditions are right and that investors are willing to take risks on new issuers. At the moment, companies are closely monitoring the situation. The volatility in the markets makes it challenging for investors to forecast the future, which in turn makes them hesitant to take those risks. However, we are optimistic that we might see a few bear listings later this quarter, depending on how the markets perform and if they create a favorable environment for these companies.

Hope you're all doing well.

How are you, Craig?

I am good. So I had a follow-up to Rich's question on market infrastructure technology. When do you expect the logistical headwinds to fade? And then what type of acceleration revenues could you experience as more clients go live following more normalization in the working environment and understand that the sales cycles can be longer in this business and contract wins can be lumpy, too.

We are not providing a specific outlook or guidance on our future trajectory. However, we feel more optimistic as we have made significant progress on major post-trade implementations. This progress increases our confidence in signing new clients in the post-trade sector. There is still a strong demand from exchanges wanting to upgrade their infrastructure, and we now have modern solutions to support them. We are pleased to be moving past these key implementations, although we still have Phase 2 to execute with some clients. This also allows us to focus on building our pipeline for the next group of clients transitioning to new clearing and post-trade solutions. It's important to note that these projects are lengthy and will take time to complete. Once we enter the implementation phase, we will see changes in how we recognize license revenue as we move into service and maintenance revenues, which typically have a different margin profile. We are optimistic about demonstrating progress in late 2022 and into 2023, but we must acknowledge that these cycles are lengthy and the projects are crucial, necessitating our continued commitment to them.

Very helpful. For my follow-up, it was nice to see the 40% year-on-year increase in futures and options contracts on the Nasdaq indexes. Can you quantify what this equates to for revenues within index? And also how we should think about this growth trajectory as more investors trade options based on Nasdaq indexes and maybe also a refresher in terms of how the accelerator math works.

Yes. So I'll let Ann answer the first question, and then I'll go into the longer-term trends.

Sure. So Craig, on your question about how much. So we don't give specificity at that level. But what I can say is if you look at the index business holistically, about two-thirds of that is asset-based, and the other one-third is the futures, plus some index data. And just on your question related to the accelerator. So I think we've talked about this coming out of the fourth quarter. In our contract, we have an accelerator that kicks in when we hit certain levels during the year. For the past two years, that's happened sort of midyear, end of June-ish. And so we did see a drop. And I think the number we shared coming out of fourth quarter was a reduction related to the accelerator coming off in the first quarter. And then assuming volumes stay at the same level as they were last year, we'd see that sort of pop up towards the middle of the year.

Yes. And in terms of the options, the Nasdaq 100 Index options revenues, it's a great question, Craig, because that's an area that our market services business is really working to build. And we have a great relationship with the small start-up that we have an investment in called Volos that's really helping institutional investors understand how to leg into index options or Nasdaq 100 index options as part of their hedging and their investment strategies. And I think that that's helping build adoption as well. And so I think that we see that as a really nice growth area for us in the Market Services business. But we're still early in really building up that ecosystem, and we have a lot of opportunity in front of us there.

So the IR and ESG revenue continues to grind a little bit higher. Could you please give us an update on your ESG initiatives, maybe including some investable products and ESG reporting?

Sure. Yes. I think that it really does just reflect good demand. Well, there's two things actually: Retention and demand. So I think that the corporate platforms team has done a really nice job of continuing to bring our client retention up year-over-year, which then, of course, allows the team to really focus on sales, which drives growth. I think the reason that we have the retention we have is certainly product enhancements and capabilities we continue to really invest in those products so that they are truly best-in-class for our customers. I think the second is just that the political environment or I should say, the geopolitical environment, the investment environment, the overall economic environment makes it so that you've got a lot of changes in the engagement with investors and with your Board, there's obviously a lot of interest on the ESG front, and I think that that's an area that's maturing. But still, corporates are really navigating that and trying to figure out how best to communicate to investors. And our team does a really nice job not only of providing really great software solutions but also advisory capabilities to help them figure all of that out. And I think that because of the combination of the advisory team with the SaaS tools is what's really driving a lot of great demand there. And we feel good about it. I would also just point out, we have 13% more operating companies listed on Nasdaq today than we had a year ago. And we do offer, as part of our IPO package, some of those services, kind of what we call a starter kit for those services. Those packages kind of roll off after three years. But also there are additional services we offer for a fee. And I think our clients are realizing that we have a lot that we can do with them to help them navigate through this really unusual environment, and that's also what's driving demand.

Got it. And then on crypto, could you please give us an update on your offerings? I think previously, you mentioned there were some crypto clients using your exchange and surveillance solutions. I'm just wondering if you can give us more update on that.

Yes, sure. So you're right. So we have I think it's somewhere in the range of about a dozen crypto exchanges that leverage our technology for trading and then for surveillance. And then we also, as I mentioned, the anti-financial crime team has built a module that's specific to digital assets to help both traditional banks and VAS really help manage their anti-fincrime efforts. So we're excited that we're rolling that out in the second quarter. And then also we have our crypto index products that we've launched. And so we continue to find ways to engage, Owen, in the crypto space. And we're continuing to watch that space in general, like how it's evolving, how it's maturing, how much institutional interest is coming in to understand how we can continue to expand our offerings over time.

I want to ask a question about trading for one. I guess you're joining a lot of other companies with the announced stock split today. But there's a lot of other Nasdaq-listed companies that are much bigger in terms of trading volumes that have also announced splitting. So I guess this is a no-brainer question. But obviously, I would assume that helps your Nasdaq-listed volumes on the equity side. So maybe you can just talk to that. But then more importantly, I would be interested in your view on what this means for options volumes. I guess lower share price probably means more contracts traded. But I think there's also this narrative that people have been using options to get into higher-priced stocks in a cheaper way. So just wondering if you've done any work on what stock split from that magnitude could mean on both equities and options.

Yes. Thanks, Alex. Yes. So you are correct that with the stock splits that are happening, I think, first of all, we should probably just say there are true market structure benefits to having a stock price that allows investors, more investors to own your shares directly because that tends to bring more investors into your stock. It tends to bring more trading on to exchange as opposed to through these fractional share offerings that are all off exchange. And the idea there is that it should drive a tighter spread, and we have a lot of evidence that our economic research department has done around that, which I think helps investors, and it helps companies. So we see it as a net positive. But you're also correct that in the U.S., not in Europe, but in the U.S., we do get paid on shares traded. So if large listings do significant splits, it does increase the shares that are traded in those stocks. But there is a partial countervailing force with options. So you also are correct that we are seeing retail investors would lag in the option in really high-priced stocks and as a way to kind of demonstrate an interest in the stock without having to pay a lot of money for each share. So there is some offset there in the options market, but we would say that, generally speaking, it's a net positive to see the increase in the share price, the better market structure versus the slight downtick that you might see in some options volumes.

Okay. Helpful. Secondly, on Verafin and financial crime. I think you talked about those businesses being strong organically. Can you give us some specific numbers, either how Verafin did or how financial crime in total did organically year-over-year, still at 20%, 30% growth rates, I think that we've seen or where you're tracking?

Yes. So thanks. Yes, I think we'll talk about the ASC level because that's what we report today, but I'm going to let Ann cover that one.

When we examine AFC as a whole, which encompasses both Verafin and our trade and market surveillance divisions, we saw organic growth of 31%. If we account for the deferred revenue write-down, the organic growth compared to last year's first quarter stands at 17%. This indicates very strong combined performance in that sector.

Yes. And I think one other just point of color to add on Verafin specifically is I think when we went into the acquisition, we indicated that we thought we could generate in the range of $140 million in 2021 for that business. And we exited the year a little above that, quite close to $150 million, which kind of brought us into and they continue to have really strong revenue growth, but it kind of brought us into this year at a nice position.

One follow-up on trading. Capture rates moved around a fair amount this quarter, particularly within equities. I know that's hard to predict in terms of forecast. But thinking about the current mix of business today, any pricing changes that may or may not have happened. How should we think about some of the capture rates into your biggest asset classes for this year?

Sure. In U.S. equities, there are two main factors influencing the situation. First, there has been a shift in the trading mix; last year’s first quarter saw more retail trading, while this year’s first quarter has experienced increased institutional trading. This change affects market behaviors and has led to higher intraday volumes but a lower capture rate. The second factor is our efforts to drive volumes into the markets. We regularly assess pricing strategies to enhance volumes and implemented several programs at the start of the quarter to boost participation in specific market functionalities. These initiatives have started to yield positive results. Regarding options, we previously noted a payment made to OCC, and during the year-end, they have a fee holiday, which lowered our stated capture in the fourth quarter. We anticipated a slight increase in Q1, which did occur. Additionally, we experienced more institutional involvement in the options market and less retail participation, which typically trades at lower prices. This mix change has contributed to a modest increase in our options capture.

Got it. That's helpful. I have a question about expenses and the clarification regarding the change in guidance, reflecting strong growth across the solutions business. You mentioned that Verafin and some other businesses are performing well. However, I know you budget for growth. So I would like to know which specific programs or segments are exceeding the budget significantly and driving the change in expenses and guidance this early in the year?

So Dan, I think it's fairly straightforward. You can think about it. We talk about our medium-term outlook for the Solutions segment in the aggregate as being at 6% to 9% growth. And so this quarter, collectively, we put up 13% organic growth, so well above that 6% to 9%. And so that's how we think about it.

Yes, we're not raising the upper limit of our expense guidance, but we are increasing the lower limit to reflect our ongoing investments. This is evident across various parts of our business, including the anti-fincrime, corporate platform, and investment intelligence sectors. We are successfully engaging with clients in these areas and want to ensure that this success is sustainable. Therefore, we are investing in expanding our teams to ensure they can effectively support our growing client base.

A question for you around the multi-listed option space. We've seen Nasdaq's market share slip there for the last couple of quarters now, and we've obviously seen some headlines around exchanges, newer exchanges dipping their tail into that marketplace as well. Look, I think over time, Nasdaq has done a really nice job kind of focusing on revenue and that market share, which is great and kind of keeping the capture rates in place from a revenue perspective. But how are you thinking about, I guess, optimizing this business going forward in light of rising competition? And how important is it to stay in over sort of north of 30-ish percent market share here? So I guess to what extent will pricing competition start to impact that business over the next few quarters and years?

We've been navigating a very dynamic auction environment for quite some time now. There are currently around 13 to 14 options exchanges, and the introduction of more exchanges is simply part of the current landscape. In terms of our management strategy, we are deliberate about identifying the types of market flows that are most appealing to us. We operate six options exchanges, each catering to different types of investors and participants. We evaluate pricing on an individual basis for each exchange, allowing for the most sophisticated options traders to engage through platforms like Philex and IC, while also accommodating basic retail traders through GMX, MRx, and others. Alex, we make a concerted effort to balance our objectives with the types of investors we want on our platforms and how we best serve them. Newer exchanges tend to focus on the lower-end platforms with less market capture, but may not cater to more complex traders. Additionally, we are concentrating on our proprietary product offerings, as we believe we have valuable assets to introduce into our options markets that exhibit unique characteristics. While we will continue to compete vigorously, we are also dedicated to enhancing our proprietary product franchise.

Could you provide insights on the anti-financial crime segment, particularly regarding the integration of the legacy businesses with Verafin under Jamie? Specifically, how do you view the cross-product synergies and organic growth related to increased crypto surveillance on digital wallets and the expansion of sanctions monitoring? Verafin has shown a growth rate of 30%, but what is your outlook for the entire unit considering these synergies? The segment was initially projected to grow at around 17% industry-wide around the time of the Verafin acquisition. Do you believe Nasdaq's growth rate could exceed this in the medium term, say over the next two to three years?

Yes. You've highlighted many areas where we see opportunities within the anti-financial crime space. Following the Verafin acquisition, our teams began collaborating immediately to leverage our existing client relationships in our surveillance business to facilitate Verafin's entry into larger firms. We've seen success in this effort. Now that the teams are better integrated, they've engaged in strategic sessions focused on optimizing client relationships and aligning our product market strategies. Integrating products will require time, as it's a multiyear plan. However, we are committed to building a pipeline of opportunities for Verafin and exploring how to extend the surveillance product to smaller clients, an area where Verafin has excelled. Overall, we anticipate medium-term growth of 13% to 16% for our Market Technology business, which encompasses both market infrastructure technology and anti-financial crime. Our initiatives in the anti-financial crime sector will contribute to achieving this growth target. If we experience greater success earlier than expected in our anti-financial crime efforts, we will consider adjusting our outlook. However, at this moment, the forecast aligns with our expectations for the business.

Okay. That's fair enough. And then just on timing and maybe you may or may not be able to answer this. But on the infrastructure market side, given all of the headwinds that you talked about and now lapping that contract, do you think you can grow revenue in that segment year-over-year by the third quarter through the fourth quarter? And then if I can just ask also just on the crypto index licenses that you talked about. Will that revenue be seen in the index licensing part of Investment Intelligence? And is that material yet? Or is that more of a longer-term growth development?

We don't specifically discuss intra-year outlooks for any particular business. However, I can mention that we had a contract roll-off in July of last year, which will impact our numbers through the end of June. We're seeing strong engagement, and last year we achieved record order intake. We've also had a solid start to this year regarding order intake. Therefore, we feel optimistic about the potential for business growth. That said, we don’t provide intra-year outlooks or guidance on it. Regarding the crypto indexes, we launched that product, I believe, either at the beginning of 2021 or 2020. This index, which is based outside the U.S., is generating revenue for us, and that has already been factored into our overall revenue for the index sector. It's a nice growth contributor, but in the context of the overall size of that business today, it's not a significant mover.

I wanted to ask about the AWS partnership. I know you've spoken about that on some of the prior calls. But I was just hoping you might be able to update us there on the migration of the Market Services business over to the cloud. And as you're deploying and moving forward with the AWS partnership, what are some of the key challenges that you're facing and deploying to the cloud? And maybe you could just give us a sense of some of the steps you're taking to overcome any of those sort of challenges and what you're doing to get comfortable there?

Absolutely. Thank you for bringing that up, as we didn’t highlight it in the script. Things are progressing well. We are actively collaborating with AWS, which is implementing their Outpost solution in our data center. We’re set to break ground at our Carteret location on May 3, in partnership with Equinix, to expand that data center. This expansion is scheduled for completion in 2024, which will enable us to enhance our offerings to clients, increase AWS presence, and develop a private local zone for our ecosystem and investment clients beyond our current capabilities. However, it will take a couple of years for everything to come to fruition. In the meantime, AWS is closely working with our engineering, infrastructure, and development teams to ensure we remain on track with our MRx migration. Our aim is to migrate MRx, one of our options exchanges, to the Outpost setup and our new Fusion platform by the end of this year, and we are making steady progress without significant obstacles. We are certainly learning as we proceed, but the partnership has been exceptional.

Just wondering if you could tell us if you make any fee changes in the listings business or other notable changes across your other non-transaction businesses to start 2022 and if inflation continues to run at elevated levels, I'm just wondering if you consider adjusting price more than you have historically in the form of CPI adjustments or other pricing adjustments.

Yes. Every year, or in recent years, we make a small adjustment to our listing fees to reflect the ongoing investment we're making in that business, similar to what we've done in the past. There hasn't been any change in that approach. However, we have worked to better understand the inflationary environment and how we engage with our clients regarding pricing. In some instances, we do implement annual CPI adjustments for our products, while in other situations, we maintain flexibility. We assess the value we provide to our clients over time or during contract renewals. We are definitely proactive in this evaluation. As I mentioned earlier, we take a long-term approach with our clients to ensure their retention and growth, which ultimately benefits our shareholders over the long term.

During the quarter, an engagement in Brazil was announced to launch a carbon credit and sustainable assets exchange. What other opportunities are available internationally? And what types of exchanges are they looking to launch?

Yes, we signed a technology agreement with a client in Brazil. We have a carbon removal marketplace called Curo Earth, in which we hold a 70% ownership. Based in Finland, it's a global platform. Major companies worldwide rely on us to source high-quality carbon removal credits and their suppliers. We're doing a great job in this area, which is still small for us, so we haven't discussed it extensively yet. However, it is definitely a growth opportunity for us in Europe, helping companies manage their carbon emissions through high-quality industrial carbon removals, and we're also expanding into nature-based carbon removals. As an operator, we're fully engaged in this space. Additionally, we can apply our technology for our markets to create opportunities for other markets. We're also working with some tech clients on their plans to launch carbon offset markets, so you can expect to see more of this in the future, but it is still in the early stages. All right. Well, I want to say I think that's all the questions. So thank you very much for your time today. And in closing, Nasdaq's first quarter results demonstrate how we're off to a strong start in 2022, and I look forward to our continued discussions throughout the year regarding our progress. So thank you very much, and have a great day.