Nasdaq Inc - 144A (NDAQ) — Q4 2022 Earnings Call Transcript

Good morning, everyone, and thank you for joining us today to discuss Nasdaq's fourth quarter and full year 2022 financial results. On the line are Adena Friedman, our Chair and Chief Executive Officer; Ann Dennison, our Chief Financial Officer; John Zecca, our Chief Legal Risk and Regulatory Officer; and other members of the management team. After prepared remarks, we will open the line 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, Neil, and good morning, everyone. I appreciate your joining us today. My comments will center on Nasdaq's financial and business performance for the fourth quarter and full year of 2022, our strategic progress, and our priorities for 2023 and beyond. I will also touch on the current market and regulatory landscape before handing the call over to Ann for a detailed look at our financial results. Despite an uncertain macroeconomic environment following a strong 2021, we continued to achieve solid growth in 2022. It was also a year marked by milestones, strategic advancements, and industry-leading innovation for Nasdaq. I am proud of our team and the resilience of our business, as well as the strong relationships we maintain with our clients. Before discussing our financial performance, I want to highlight our new corporate structure introduced in the fourth quarter. During our Investor Day in November, we discussed how aligning our business into three divisions—Market Platforms, Capital Access Platforms, and Anti-Financial Crime—positions us to leverage key trends shaping the financial system and unlock new growth opportunities. These trends involve market modernization, the development of the ESG ecosystem, and the increasing demand for advanced anti-financial crime technologies, where we can enhance the financial system's integrity with emerging technologies such as cloud and AI. Our financial results reflect this new divisional alignment, and we look forward to continuing our journey in delivering world-class platforms that enhance liquidity, transparency, and integrity in the global economy, aiming to become the trusted foundation of the financial system. Now, let's move on to our results. I'm pleased to announce Nasdaq's financial performance for the fourth quarter and full year of 2022. In the fourth quarter, Nasdaq generated $906 million in net revenues, a 2% increase from the previous year, and a 5% increase on an organic basis, excluding the impacts of foreign exchange rates and acquisitions. In this quarter, our Solutions businesses achieved 5% organic growth, despite an 11% decline in Index revenues. Trading Services saw a 4% organic growth in the fourth quarter, building on a strong trading performance from the same period in 2021. For the full year 2022, net revenues reached $3.58 billion, a 5% increase from 2021, and 7% on an organic basis. Our Solutions businesses recorded a 10% annual organic revenue growth, even in a rapidly changing market, while Trading Services revenues grew 1% on the back of strong performance in 2021. Our annualized recurring revenue ended at $2 billion, marking an 8% year-over-year increase. Annualized SaaS revenues rose 13% to $725 million in the fourth quarter, making up 36% of our total ARR. For the full year, non-GAAP earnings per share were $2.66, reflecting a 6% increase from 2021. This strong performance amid a challenging macroeconomic backdrop underscores the strength of our diversified business and our ability to meet our longer-term goals. Moving on to divisional highlights in our Capital Access Platforms division, we generated $420 million in total revenue in the fourth quarter, a 2% growth on an organic basis. Revenue from our Data and Listing Services increased 3% year-over-year and 6% organically, primarily due to higher annual listing fees and increased proprietary data revenue. Nasdaq remained the leading U.S. exchange for IPOs for the 10th consecutive year, with 87 listings and a 92% win rate. In Europe, our exchanges had 63 new listings in 2022, including 38 IPOs, with Nasdaq Stockholm leading as the most successful listing venue. Our Index business faced an 11% revenue decline year-over-year, primarily due to lower average AUM and reduced trading volumes linked to Nasdaq indices. The fourth quarter was particularly challenging for the market. Ann will provide more insights on the driving factors behind the revenue decline. For the full year, Index revenues grew 6% compared to 2021 due to higher net inflows and futures volumes. We saw $34 billion in net inflows into exchange-traded products and strong demand, resulting in 44 ETPs tracking Nasdaq indexes accumulating $3.5 billion in AUM. In our Workflow and Insights division, fourth-quarter revenues increased by 8% from the prior year or 10% organically, reflecting stronger client engagement and retention. In our Market Platforms division, total revenues for the fourth quarter reached $403 million, a 3% increase or 5% organic growth. Our Trading Services business generated combined total revenue of $253 million, a 4% organic growth driven by higher equity derivatives trading. Cash equities trading revenues fell year-over-year, primarily due to decreased European cash equity revenues, slightly offset by growth in the U.S. Our announcement regarding the migration of Nasdaq MRX to the cloud in partnership with Amazon Web Services marked a significant milestone in modernizing technology infrastructure in capital markets. This success has bolstered our credibility with clients, including Bolsa Electronica de Chile, which has decided to migrate its trading technology to our cloud-based platform. Additionally, our Marketplace Technology business reported $150 million in fourth-quarter revenue, a 5% increase from the previous year, driven by demand for connectivity and successful Trade Management Services. Total order intake for Market Technology amounted to $106 million for the quarter and $264 million for the full year. We experienced strong order intake from both existing and new clients, with over 90% opting for SaaS solutions. We are also making good progress with implementing post-trade solutions. I would like to touch upon the SEC's equity market structure proposals published in December 2022. We are encouraged that the proposals address many of our recommendations for optimizing markets. While we believe current equity markets function well, we see opportunities for enhancements and support the SEC's efforts to modernize market structures. It's vital for the commission to be careful to avoid unintended consequences, so we support an incremental and collaborative approach. However, we plan to suggest improvements during the comment period where we differ. Lastly, in our Anti-Financial Crime division, we reported $82 million in total revenue for the fourth quarter, a 21% organic increase from the prior year, driven by demand for our fraud detection and AML solutions. Our FRAML solutions specifically saw a 23% growth when adjusting for deferred revenue impacts. The division welcomed 98 new SMB clients this quarter and made progress in the crypto anti-financial crime platform. We also received positive feedback following proofs of concept with Tier 1 and Tier 2 banks, leading to additional expected client signings in 2023. I want to acknowledge Brendan Brothers’ appointment as interim head of our AFC division as Jamie King retires. We're grateful for Jamie's contributions, and we look forward to Brendan leading us further in our AFC initiatives. As we focus on the upcoming year, our priorities include realizing the benefits of our new divisional alignment, ensuring readiness for a challenging market, and advancing our cloud and AI strategies. We will enhance client experiences through a unified approach and take advantage of growth opportunities presented by our new structure. Remaining adaptable in a continuously evolving market will be essential for demonstrating the value of our solutions, even amid economic uncertainty. We are optimistic that 2023 will be a year of significant adaptation to digital transformation through technology investments, reinforcing our strong client retention and engagement. We remain committed to providing world-class solutions to our clients while navigating a complex environment. We have confidence in our ability to achieve our growth outlook in the medium term and continue to invest in market modernization and innovation. In closing, I want to emphasize that our fourth quarter delivered solid results, wrapping up a successful 2022 for Nasdaq. As we look ahead to 2023, we are focused on leveraging our new corporate structure to drive growth in liquidity, transparency, and integrity, aligning with our goal of becoming a foundational element of the global financial system. Now, I'll turn the call over to Ann for the financial details.

Thank you, Adena, and good morning, everyone. I will focus on our non-GAAP results, comparing them primarily to the previous year, unless stated otherwise. You can find reconciliations of U.S. GAAP to non-GAAP results in our press release and the Financials section of our Investor Relations website. On Slide 4, you will see our financial reporting reflects the new corporate structure announced last quarter. To better align our reporting with our internal management, we recast U.S. cash equity and options revenues into the Trading Services business within the Market Platforms division, instead of the Data and Listing Services business within the Capital Access Platforms division. An updated supplement is available on the IR website, reflecting historical time periods with this change. I’ll begin with our fourth quarter 2022 performance on Slide 11. The reported net revenue of $906 million represents a 2% increase, driven by 5% organic growth, which includes a 5% rise in Solutions businesses and 4% in Trading Services. This growth was partially offset by a 3% negative impact from changes in foreign exchange rates and the effects of acquisitions and divestitures. Regarding operating profit and margins, non-GAAP operating income fell by 1%, while the non-GAAP operating margin decreased to 49% from 51% in the previous year. For the full year 2022, the non-GAAP operating margin reached 52%, down by 1 percentage point compared to 2021. Non-GAAP net income attributable to Nasdaq was $317 million, or $0.64 per diluted share, compared to $328 million or $0.64 per diluted share last year. Moving to Slide 12, ARR was $2 billion, representing an 8% increase from the previous year, while annualized SaaS revenues amounted to $725 million, a 13% rise. I will review quarterly division results on Slides 13 through 15, starting with the Market Platforms division. Revenues increased by $10 million, or 3%. The organic growth was 5%, with a 2% negative impact from foreign exchange rates. Trading Services saw 4% organic growth, primarily from higher U.S. equity derivatives and cash equity revenues, although European cash equity revenues decreased due to lower industry volumes. Our Trade Management Services performed strongly, and the Market Technology business continued organic growth, driven by increased SaaS revenues and robust order intake, further confirming that our leadership team's initiatives are advancing the business. ARR for this division was $503 million, an uptick of 5% year-over-year. The operating margin in the fourth quarter of 2022 was 52%, down from 54% in the full year, reflecting increased expenses related to our ongoing investments in people and businesses, including our digital asset strategy. Capital Access Platform revenues remained unchanged, showing 2% organic growth of $7 million while also experiencing a 2% negative impact from foreign exchange rates. The period's organic revenue growth was supported by Workflow and Insights and Data and Listing Services businesses, though Index revenues declined. Overall Index revenue fell by 11% compared to the fourth quarter of 2022. Our asset-based licensing revenues dipped by 21% year-over-year, while futures-related revenues linked to the NASDAQ 100 Index rose by 25%. The average assets under management (AUM) decreased by 19% from the previous year. Trading volumes in futures linked to the NASDAQ 100 index increased by 21% year-over-year. To better support analysts and investors, we are updating our public disclosures to include average AUM each quarter alongside end-of-period figures, improving alignment with our revenue drivers. Looking ahead to the first quarter of 2023, we anticipate approximately $9 million less revenue compared to the fourth quarter of 2022 due to annual agreements resetting as trading activity meets certain thresholds reached in the second quarter of 2022. ARR for Capital Access Platforms was $1.19 billion, a 7% increase year-over-year. The division's operating margin was 50% in the fourth quarter, down 3 percentage points compared to the previous year. The full year operating margin for 2022 was 54.4%, up 60 basis points from 2021. Anti-Financial Crime revenue rose by $14 million, or 21%, boosted by a $4 million increase from the deferred revenue write-down on Verafin in the fourth quarter of 2021. Organic growth was also 21% for the period, or 14% excluding the deferred revenue impact, indicating strong demand for fraud detection and anti-money laundering solutions. Anti-Financial Crime ARR reached $312 million, a 16% increase year-over-year, while signed ARR totaled $338 million, representing a 17% increase. The operating margin for the Anti-Financial Crime division was 32% in the fourth quarter of 2022 and 26% for the full year. Discussing expenses and guidance on Page 16, non-GAAP operating expenses rose by $26 million to $460 million, with the increase driven by a $45 million organic rise, partially offset by a $20 million decrease from foreign exchange changes and a $1 million decrease due to acquisitions and divestitures. The organic expense rise is largely due to increased compensation and general administrative expenses. Higher compensation reflects our ongoing investment in new hires to fuel growth, as we expanded our team by 10% over the past year, and annual merit raises were higher due to inflation. General administrative expenses increased primarily due to higher travel as we returned to more normalized travel levels in 2022. In the fourth quarter of 2022, we began a divisional alignment program aimed at maximizing the potential of our new corporate structure. This initiative will help us focus on three key trends: modernizing markets, ESG, and anti-financial crime. This restructuring will bring our commercial teams closer, improve technology and marketing efforts relating to products, and redefine how we engage with clients across products. Consequently, we expect to incur between $115 million and $145 million in pretax charges, with about 40% being non-cash charges. This program will span two years and will involve asset impairments, employee-related costs for the alignment, and one-time consulting expenditures aimed at unlocking revenue synergies. We anticipate benefits in terms of annual operating efficiency and revenue synergies of at least $30 million by 2025, with related costs recorded as restructuring expenses. We are setting our 2023 non-GAAP operating expense guidance at $1.77 billion to $1.85 billion. The midpoint of this guidance represents a little over 5% increased spending, inclusive of 1% for our digital asset strategy, largely reflecting our ongoing investment to drive growth in ESG, anti-financial crime, and market modernization. We expect the non-GAAP tax rate for 2023 to be between 24% and 26%. On Slide 17, we note that debt increased by $27 million compared to the third quarter of 2022, due mainly to net issuances of $465 million in commercial paper and a $164 million rise in Eurobond book values due to a stronger euro, offset partially by the repayment of $600 million in senior unsecured notes. Our total debt to trailing 12-month non-GAAP EBITDA ratio holds at 2.7 times, the same as in Q3 2022. With record free cash flow, excluding Section 31 fees of $1.5 billion in 2022, and a weighted average cash cost of debt of 2.2%, along with no long-term debt maturities until 2026, we are well-positioned to mitigate the effect of rising rates and maintain flexibility for growth. During the fourth quarter of 2022, we distributed common stock dividends totaling $98 million. As of December 31, 2022, there is $650 million remaining under our share repurchase program, which was increased by Board authorization in December. On Page 18, I want to highlight our significant progress in executing our sustainability strategy. For the seventh consecutive year, we were selected for the Dow Jones Sustainability North America Index, a leading benchmarking system for environmental, social, and governance performance. Nasdaq was one of eight diversified financial services firms included in the 2022 index. Additionally, we were among only 283 companies out of 15,000 evaluated that made CDP's 2022 Climate Change A List. In conclusion, Nasdaq’s fourth quarter results showcase our ongoing ability to deliver strong performance across various operating environments. Thank you for your time, and I will now pass it back to the operator for Q&A.

Yes, good morning, Adena, and good morning, Ann. I didn't fully grasp the details regarding the restructuring charges, but I would like to broaden my question. Adena, you mentioned at the end of your remarks the outlook for 2023. We all understand the implications of a downward market on the index and listing businesses. However, I'm curious about which sectors might thrive or if there are any areas that could advance amid this macroeconomic uncertainty. Investors tend to view exchanges as somewhat countercyclical. Furthermore, regarding the outlook, I know it's early, but the Reg NMS changes likely won't occur this year. How do you assess the balance between proposed fee caps and higher volumes in light of these changes?

Sure. That was a comprehensive question, Rich. In terms of our outlook for 2023, the overall sentiment within Nasdaq is positive, with strong client interactions across all areas of our annualized recurring revenue, including our Anti-Financial Crime business, Corporate Solutions, investment analytics, and Marketplace Technology. We continue to see solid client demand and good progress on our strategy. Our ESG services experienced double-digit growth, and our anti-financial crime technology is also showing strong growth. The ongoing market modernization is enhancing our engagement with market tech clients as they work to update their infrastructure. Despite the challenging market backdrop, our exchange remains a resilient platform due to our trading, listings, and data services, which provide stability across various market conditions. However, areas like listings revenues could be affected if there aren't new listings. We have 200 companies looking to join Nasdaq, which is hopeful if market conditions improve. It ultimately depends on investor confidence in new deals, and if interest rates stabilize and inflation decreases, we may see an uptick in activity later in the year, benefiting both 2023 and 2024 growth. Regarding our Index business, it is influenced by market conditions with our assets under management. While we faced challenges last year, we are entering 2023 with a better outlook. We will monitor developments in this area throughout the year. Overall, we feel positive about client engagement with our recurring and SaaS revenues, despite longer sales cycles in some areas. We have consistently demonstrated strong performance through different market cycles. Additionally, regarding Reg NMS, it's still early. This is an initial SEC proposal that will undergo revisions over several years before we see its impact. We are optimistic about the opportunity to increase retail volume on lit venues, which will benefit us, but we need to address changes in tick sizes and access fees to align with the intended goals of the proposed changes.

Good morning. And thanks for taking the question. I wanted to dig in a little bit on Verafin. I was hoping you can update us on how the sales environment and pipeline is evolving. And you mentioned some proof of concepts that are undergoing right now. I was hoping maybe you can elaborate on how many you have with Tier 1 banks, and historically, what's been the time to conversion with those historical clients signing over to becoming paying customers? Thank you.

Sure. Thanks, Michael. If we look at AFC overall, it includes our anti-financial crime solutions, such as the FRAML business with Verafin capabilities, along with our trade and market surveillance technologies for trading firms and markets respectively. In Verafin, we are experiencing strong demand, particularly from small and medium banks, with a consistent conversion rate from leads to paying clients. We gained 98 new clients in the quarter, which reflects positive dynamics and underscores the value of our product in sales. As we target larger banks, we are entering new territory, specifically with Tier 2 banks, where we are steadily gaining traction. Our proof of concepts are demonstrating significant reductions in false positives and improved fraud detection, which are crucial for client conversions. The sales cycle for Tier 2 banks typically ranges from six to twelve months. Moving to Tier 1 banks, we have completed several proofs of concepts that also show solid results regarding reduced false positives and enhanced fraud detection. However, the sales cycles here are longer due to extensive internal reviews and cybersecurity assessments, generally spanning nine to eighteen months. We are optimistic about converting some of these clients this year, having completed many proofs of concepts in the first half of last year. While I won't share specific numbers, we have a good number of proofs of concepts finalized, which positions us well to engage with Tier 1 banks throughout 2023, and we are confident in our ability to showcase these proof points as the year progresses.

Yes, good morning, everyone. This may be a little bit of a snippy question but I'm going to ask it anyways. It's about the recast. So obviously, you just in November resegmented and rolled out new targets for solutions 7 to 10. But then obviously, you just recast something today to basically move a no or shrinking business into the non-solution segment. So if my math is right, it's about 60 basis points of positive impact to organic growth to Solutions in the fourth quarter. So I guess my question is, should we hold you accountable for higher targets now? Was it 7.5% to 10.5%? Or how should we be thinking about it? Because, again, you did a nice job recasting and really moving Solutions to be non-trading, and now you're changing that around again? Thanks.

Thank you for your question, Alex. We actually made a change regarding the management of our options and equities tape revenues. Previously, options tape revenue was included within the Market Services business, while equities tape revenue was part of Market Data. We initially decided to move the management of the equities tape to the Markets team because its revenue is more influenced by market share dynamics rather than pure client demand. As we restructured into the new divisional alignment, we moved the options tape into data instead of moving the equity tape to markets. After further consideration in the fourth quarter, we realized it made more sense to manage both options and equities tapes under the Market Platforms division, where the relevant team is located. This change wasn’t intended to alter any targets, and our medium to long-term outlook for Solutions remains unchanged at 7% to 10%. The primary reason for this shift was simply to align the products with the appropriate management team.

Good morning. Thank you for taking my question. So on the expense outlook, could you please talk about the area that you will invest in ESG and Anti-Fin Crime? Is there any specific examples you can give to us? And how should we think about the new product launches or even incremental revenue potential from these investments? Thank you.

Sure, I'll start. Hi Owen. When we look at our guidance, the midpoint is at 5%, which is slightly below the midpoint of our medium-term outlook of 4% to 7% that would be 5.5%. Most of our growth supporting this 5% is focused on our growth initiatives in ESG, Anti-Fin Crime, and market modernization. I see these as essential investments needed for long-term opportunities that will drive revenue growth in our medium-term outlook. Specifically, we are aiming for an 18% to 23% outlook for Anti-Fin Crime and our capital access platform to facilitate growth, with ESG being the fastest-growing segment, despite starting from a smaller base, contributing significantly to the Workflow and Insights part of our business.

Yes. I believe one important point to highlight, Owen, is that within the 5% annual growth in expenses, approximately 1 percentage point is allocated to our ongoing investment in the digital assets business. We are nearing the launch of that business, which we anticipate will happen in the first half of this year. This is a significant investment we mentioned during our discussion of the outlook. Furthermore, regarding the remaining 4% growth, as Ann noted, most of that increase results from ensuring we are making the right investments across our three key pillars. While we are not specifying the investment amounts for each pillar, it is essential to consider that the growth outlook for any of these businesses will dictate the level of investment. For instance, with our AFC business expecting medium to long-term growth of 18% to 23%, we are enhancing our R&D, go-to-market strategies, and sales capabilities to support that growth, resulting in a higher level of investment compared to something growing at 5%. Overall, we believe we are making prudent decisions about where to allocate our capital to sustain growth and achieve our medium to long-term objectives.

Good morning, everyone. So I had a question on the pretax charges from the divisional alignment. I was wondering if you could provide more detail behind the employee-related costs. And what does this really mean in sort of simple terms? Is it layoffs, new hires? And where are you increasing headcount and where are you potentially reducing headcount?

Thank you, Craig. I will address that question. The realignment program we have initiated is closely linked to the restructuring and realignment of our divisions. The employee costs projected between $115 million and $145 million are specifically related to this divisional realignment rather than being a company-wide measure. Our focus is on the strategies related to location and functions within the divisions. We are also migrating some of our technology to enhance the efficiency of the combined divisions. We anticipate these costs will occur over the next two years, with an expected return that includes an annual savings and revenue synergy of approximately $30 million, fully realized by 2025. Currently, most of that $30 million estimate is related to expenses.

Thanks, good morning. I wanted to follow up on the Anti-Fin Crime. The 14% growth excluding deferred revenue this quarter makes me think about how that relates to the 3 to 5-year outlook of 18% to 23%. You’ve mentioned a lot of momentum, but considering the long sales cycles, should we expect 2023 to be at the higher end of that range, or will we see a ramp-up towards the end of 2023 and into the following years to reach those higher targets?

As we consider our medium- to long-term outlook of 18% to 23%, we believe this is underpinned by sales opportunities, our pipeline, and ongoing investments in our products to enhance our capabilities. To provide more detail on the dynamics, our FRAML solutions, specifically our Verafin asset, achieved over 20% growth this quarter and shows strong growth potential as it scales. We believe that this growth is not solely dependent on Tier 1 and Tier 2 banks in the short term. However, as we expand into these markets, the potential contract sizes will be significantly larger. Therefore, maintaining momentum in these areas will be crucial for sustaining strong growth in our business. The trade surveillance segment continues to experience high single-digit to low double-digit growth, serving trading firms with surveillance solutions. We are driving this growth by expanding our offerings, including crypto modules and incorporating more asset classes onto the platform while also globalizing our customer base. We have established ourselves as a significant enterprise provider of surveillance for large banks, which supports our growth trajectory in this segment. Conversely, our market surveillance business, being the smallest part of the division, has a low growth profile, with growth being largely flat over the year. This area focuses on providing surveillance for markets and regulators, and the client base is limited, making growth more challenging. This has contributed to a more conservative growth outlook for 2022. Moving into 2023 and beyond, we are hopeful about finding new avenues for growth, though we expect it to remain a low-growth area in the coming years. I hope this context helps clarify our position.

Good morning. Thanks for taking my question. Maybe just one confirmation just on the divisional alignment program, the $115 million to $145 million. I just want to make sure that's those expenses are not included in the non-GAAP guidance. So just a clarification on that. And then more broadly, just in terms of the Solutions growth for this year, I realize 7% to 10% remains your longer-term target. But given the headwinds that you're describing this year from the elongated sales cycles and of course, the pressure on index licensing, should we be thinking of a near-term 2023 as being sort of lower than that? And then the initiatives that you're investing in would potentially then raise that in '24? So kind of a slowdown and then a reramp of that Solutions revenue.

Sure, Brian. Regarding the first part of your question, the costs associated with the divisional alignment program will be recorded under restructuring and will not be included in our non-GAAP expense guidance for 2023.

Yes. Regarding the overall outlook for the business, I believe we feel confident about our growth in the Solutions businesses, particularly in AFC and investment analytics, which provide insights and workflows for corporates. We are seeing strong client demand, although some sales cycles are taking longer, which might slightly impact our growth for the year. Our listings and Index businesses are somewhat reliant on market conditions. We are hopeful for improvements in index and market values, which would encourage more companies to enter the market and help us align with our targets. However, these areas could present challenges if the overall market does not improve this year. That's why we prefer to view our targets as medium to long-term, averaging over several years due to the possibility of tougher market conditions in some years. It’s worth mentioning that despite the challenging market in 2022, we achieved 10% organic growth in our Solutions businesses, with an 8% increase in ARR and a 13% rise in SaaS. Thus, we were able to maintain a consistent performance despite last year's difficult market environment.

Good morning, Adena and Ann. I wanted to just spend a second on Puro.earth and the long-term opportunity there. I know Puro.earth presented at COP 27 and the trading certificates increased 250% in 2022. Can you talk about the potential earnings contribution from this business in the future? And is there an opportunity to sell Puro.earth directly to your corporate clients that are across the U.S. and Nordic businesses?

Sure. We do have a minority position in Puro.earth, which is a carbon removal marketplace in partnership with Fortum in Finland. We're quite enthusiastic about the opportunities it offers to us and our clients. Our corporate clients are already purchasing carbon removal credits directly through the Puro.earth platform, and we utilize our corporate relationships to drive the demand for those credits. Currently, the market is limited, and while it grew significantly year-over-year, it remains a small business within our Market Platforms segment. It supports our ESG strategy but is constrained by supply. We're focused on sourcing high-quality industrial carbon removals and conduct thorough due diligence on every supplier we onboard. We work with an advisory committee to select which scientific methods to incorporate. Given the industry’s early stage, we face challenges due to a limited supply right now. However, we anticipate significant investment in carbon removal over the next three to five years, which should enhance supply. We're also replatforming Puro.earth to implement an advanced blockchain-based registry that can be utilized across various trading venues. Additionally, we’re collaborating with market makers to establish a secondary market for buying removals, facilitating the development of trading activity on the platform. I would emphasize that Puro.earth represents a long-term strategy spanning 5 to 10 years. It's currently a modest investment, but we're very optimistic about its future potential.

Good morning. Thanks for the question. I was hoping we could dig into some of the interplays in the kind of legacy listings business and the Corporate Solutions business. I guess, on the one hand, I was curious if you could help frame the revenues that could be at risk from stocks delisting over the course of this year, and then on the flip side, opportunities you guys might see from some of the discounts on the Corporate Solutions services that you provided to IPOs that listed over the last couple of years, those coming off and the probability of them starting to pay for service?

Thank you, Alex. The SPAC revenue accounts for just over 1% of Nasdaq's total revenue, making it a minor portion of our overall revenue stream. While we are observing some SPAC combinations, many are opting to return funds to their shareholders. We acknowledge that the environment for SPACs has changed significantly, and we expect some revenue decline as certain SPACs may not find combinations. This could have a greater impact in 2024 than in 2023, and we are monitoring the situation closely. To provide context, it's slightly more than 1% of our revenue. Regarding Corporate Services and Solutions, which includes our IR and ESG solutions for corporations, we have many clients using our platform. We have supported them through the IPO package for the past two years, and we anticipate an opportunity to convert them into paying clients, especially in 2024. Our goal is to transition these clients to paying customers, and we've already upsold some during the IPO package period into our ESG and deeper IR solutions. Some of them are already paying clients, reinforcing our belief that they will continue using our services after the IPO period. However, I see this more as a 2024 opportunity rather than 2023, but we remain optimistic. Our client retention is strong as we convert them.

Good morning. Maybe a question on the BEC migration from your on-premise solution to your cloud-based platform. Could you just remind us of the revenue and margin impact for Nasdaq from this type of on-premise to cloud migration? I'm just trying to put some numbers around the impact so we have a better understanding of kind of the larger opportunity if we see more similar type announcements over the coming year or two?

Yes. I think that we'll probably need to come back to you to give you a little bit more of that view. I can't sit there and use one client and extrapolate it to the whole business. But when we do sign a client on to more of a SaaS-based market tech contract, there are two benefits. One is just it becomes an annualized recurring revenue as opposed to an implementation revenue, which has much lower margins, followed by a service and maintenance and license agreement which has a higher margin. So you have like more steady revenue and a more steady margin throughout the length of the contract. But I don't think we've given you a view yet into like what's the margin differential. And so I kind of feel like we probably need to come back and give a little bit more of an insight into that specifically as we gain more traction in getting our clients to sign on to cloud-based, particularly cloud-based solutions. So let's come back to you on that, but I just don't want to give you kind of a wrong answer right now. Great. Thank you very much. Well, as we conclude today's call, I want to reiterate that our leadership team remains very focused on executing our strategy to deliver for all of our stakeholders, and we look forward to continued discussions throughout the year on the progress we aim to make against our strategic priorities. So thank you very much, and have a great day.