Nasdaq Inc - 144A (NDAQ) — Q1 2023 Earnings Call Transcript

Good morning, everyone, and thank you for joining us today to discuss Nasdaq's first quarter 2023 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 up the line 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 in periodic reports filed with the SEC. I will now turn the call over to Adena.

Thank you, Ato, and good morning, everyone. Thanks for joining us. Before I start, I would like to welcome Ato Garrett to the Nasdaq team as our new Investor Relations Officer. I know he's looking forward to meeting each of you very soon. I will now turn to my remarks today, which will focus on Nasdaq's first quarter performance and the solid progress we're making to deliver on our strategic objectives. I will then turn the call over to Ann for a review of our financial results. Let's begin with the current market landscape. Nasdaq continued to perform well, despite a very dynamic operating environment, with a shock to the banking sector occurring amid an already uncertain macro backdrop. During this challenging period, we delivered solid financial performance while demonstrating operating and strategic momentum across each of our divisions. We achieved a new milestone for our anti-financial crime division with the signing in April of our first Tier 1 client with over $1 trillion in assets for our fraud solutions, including comprehensive fraud detection capabilities across wires, ACH, and checks, as well as case management and reporting functionality. We maintained our leading position in US cash equities and equity derivatives trading while seeing strong demand for both our ESG services and our SaaS-based market technology solutions. Overall, the current uncertain financial backdrop highlights the value of our diverse platform of mission-critical solutions. In the first quarter, we also witnessed a generational technology breakthrough with the emergence of new artificial intelligence tools called generative AI. While the debate surrounding use cases for generative AI needs time to evolve, it is clear to us that companies that have invested in modern technologies, including cloud architecture and deployment, modern APIs, and machine learning are poised to take advantage of this new era of technological advancement. At Nasdaq, we've been focused on investments to modernize our technology across our businesses and, therefore, we're well-positioned to incorporate more advanced AI capabilities in the future. Against this evolving economic and technological backdrop, our team remained hyper-focused on delivering for our clients. Our results underscore our ability to navigate successfully amid a dynamic market environment and to deliver on our long-term commitment to providing world-leading platforms that improve the liquidity, transparency, and integrity of the global economy. Now let's turn to our results. I'm very pleased to report Nasdaq's solid financial performance for the first quarter of 2023. We achieved $914 million in net revenues, an increase of 2% compared to the prior year period, and an increase of 4% on an organic basis, excluding the impact of changes in FX and an acquisition divestiture. Revenues across our Solutions businesses were $646 million, up 4% from the prior year period, driven by organic growth of 5%, partially offset by the impact of changes in FX. Excluding the Index business, which declined by 10% due to a continued weak beta backdrop, revenues in our Solutions businesses increased 8% organically compared to the prior year period. Our total annualized recurring revenue, or ARR, increased 7% to $2 billion. Annualized SaaS revenues totaled $729 million for the first quarter, which represents an annual growth rate of 11%. Our SaaS revenues now comprise 36% of total company ARR. Across each of our divisions, we delivered well for our clients during the quarter. In our Capital Access Platforms division, we delivered $416 million in total revenue in the first quarter. Despite growth in data, as well as in workflow and insights, headwinds across our Listings and Index businesses resulted in flat organic revenue for capital access platforms year-over-year. Index experienced a 10% revenue decline and Listings was stable year-over-year. While our Index business continues to show a year-over-year decline due to higher market levels at the start of last year, during the first quarter, we did experience a 5% improvement in average AUM from the fourth quarter of 2022. If the markets continue to demonstrate some level of recovery from last year, we should experience improving year-over-year index performance as we continue through 2023. Data and Listing Services revenues grew 4% organically, driven largely by higher international demand for our proprietary data during the period. Our Workflow and Insights business revenue grew 5% organically, which reflects continued demand for our IR, ESG, and analytics solutions, as clients navigate a dynamic and challenging market environment. Turning next to our Market Platforms division. We delivered $413 million in total revenues during the first quarter, a 6% organic increase from the prior year period. Amid a volatile capital markets environment, our core trading services business experienced strong performance in North American markets, where we saw double-digit revenue growth, partially offset by a decline in our European markets revenues, primarily reflecting lower value traded and cash equities due to market declines in a softer volume environment. In the US, we continue to provide our clients with the premier trading experience while optimizing the revenue capture mix for both US cash equities and multiply listed equity options. In Marketplace Technology, we delivered 11% revenue growth, driven by strong results in both trade management services and market technology. During the quarter, we signed a Marketplace Services platform agreement with an innovative carbon trading marketplace in Latin America, as well as a new European risk modeling customer. We also signed a multiyear extension and expansion with a Tier 1 bank for our trading platform. Finally, turning to our Anti-Financial Crime division, we delivered $84 million in total revenue in the first quarter, an 18% organic increase from the prior year period and a 16% increase, excluding the impact of the deferred revenue write-down in the first quarter of 2022. Revenues in our fraud detection and anti-money laundering solutions, or what we call our anti-financial crime solutions, grew 30% compared to the first quarter of 2022 or 27% excluding the impact of the deferred revenue write-down. The overall anti-financial crime business saw continued growth with 42 new ASC clients during the period. Our first quarter financial performance also illustrates the progress we've made to capitalize on certain growth opportunities that are aligned with three key trends that we believe are shaping the financial system. First, the modernization of markets where we can deliver innovation that powers the world's economies and enhances the underlying market infrastructure. Second, the development of the ESG ecosystem, where we help companies and investors successfully navigate increasingly complex reporting frameworks, access more seamless routes to capital, and achieve their net-zero or sustainability objectives. And third, the increasing need for advanced anti-financial crime technology, where we can enhance the integrity of the financial system through emerging technologies, including cloud and AI, coupled with end-to-end workflow solutions for our clients. In this regard, I'd like to provide two highlights for the quarter. First, our focus on market modernization continues to deliver innovation that enhances the liquidity and the underlying market infrastructure that powers the world's economies. From the successful migration of Nasdaq MRX, which is one of our six options markets to the cloud infrastructure in the fourth quarter of last year in partnership with AWS, we announced during the first quarter our plans to migrate our second options market to the AWS Edge Cloud by the end of 2023. Second, as financial institutions make investments in technologies to detect and fight financial crime, in early April, we are very pleased to sign our first global Tier 1 client with over $1 trillion in assets to our fraud solution, including comprehensive fraud detection capabilities across wires, ACH, and checks, as well as case management and regulatory reporting functionality. Additionally, we signed another Tier 2 client to our enterprise anti-money laundering solution during the period. These signings further demonstrate our ability to displace legacy providers and manual processes through our cloud-based and market-proven solutions. As we look ahead, I want to take a moment here to discuss in more detail the breakthrough developments in the field of artificial intelligence, which have captivated businesses across all industries concerning its applicability and impact. As a result of our years of investment in our cloud-architected market solutions and SaaS applications, coupled with our recent acquisitions of advanced cloud-based investment analytics and anti-financial crime solutions, I believe Nasdaq is uniquely positioned within our sector to play a leading role with this technology in the future through the responsible deployment of AI to drive meaningful impact to our business, products, and clients. To date, we've been very intentional in migrating critical workloads and capabilities into a cloud environment with modern APIs to support client connectivity and functionality. We've also built unique data sets across various areas of our business. Both are foundational to our ability to leverage this generational shift in technology. While we're just beginning the process of evaluating specific ideas for the use of generative AI in our products and across our business operations, we see compelling opportunities to leverage broader AI models, including deep reinforcement learning, predictive control, and computer vision across our business divisions to support our strategic efforts to enhance the liquidity, transparency, and integrity of the financial ecosystem. This is already happening in various elements of our business today. For example, in our anti-financial crime business, Verafin has integrated AI and machine learning into their solutions and capabilities since their founding 20 years ago. The combination of the advanced data sets combined with the self-learning capabilities of the AI and machine learning model is a key differentiator for the product. This improves the efficiency in the banking industry's daily compliance processes and achieves a step change in their ability to detect and stop money laundering, fraud, and market abuse across their networks, as well as to reduce false positives. In our Market Platforms division, we're in the advanced stages of new product developments that incorporate AI, including new dynamic order types that improve our clients' fill rates while minimizing market impact. In fact, we've submitted for regulatory approval our first AI-based market order type, which is context-aware, meaning that it is designed to incorporate awareness of market conditions on a real-time basis. As we seek out more ways to leverage AI across other parts of our business, we intend to take a principled approach to leveraging generative AI for the right purpose. Our data scientists and agile development teams will continue their research and development responsibly so that our regulated and unregulated businesses can deploy this technology to create and maintain fairness across markets and develop more advanced solutions to fight crime. We look forward to updating you on our progress with these opportunities in the quarters to come as we continue our journey to become the trusted fabric of the global financial system. Before I turn the call over to Ann, I'd like to offer some operating environment as we move further into 2023. When we gathered in January for our fourth quarter results call, we discussed some of the impacts and market-driven headwinds that we are beginning to see related to the market environment and the uncertainty in the global economy. As we progressed through the first quarter, as we expected, we saw a decrease in the total number of operating company IPOs versus the prior year period, as companies put their IPO plans on pause while investors closely monitored interest rates and correlated inflation figures. Despite the slower start to the year, we maintained our track record for winning new operating company listings across our US and European markets in the first quarter. In the US, we welcomed 30 new operating company IPOs during the period for a 91% win rate, bringing seven of the top 10 IPOs by proceeds raised. In addition, there's a significant backlog of operating companies in the pipeline with 147 active operating companies on file with the SEC to go public and committed to Nasdaq, which is a 10% increase versus the fourth quarter of 2022 and a 25% increase versus the prior year period. Our team continues to be in close contact with these companies, and we believe that we are well-positioned to capture future listing activity once the IPO window reopens. Beyond listings, we're still seeing elongated sales cycles in our Workflow and Insights businesses. As we previously observed, while overall interest in client demand for our Workflow and Insight solutions remains healthy, the process for some clients is taking longer as they escalate buying decisions through more levels of approval. Demand for our strategic focus areas, including our anti-financial crime solutions, our ESG solutions for corporates, and our modern market solutions for established exchanges continue to be strong and largely unaffected by the market environment at this stage. Overall, we're very fortunate to have deep and trusted relationships with our clients who rely on us even more during complex operating environments. For example, during periods of heightened volatility, pensions and endowments often need to make swift asset allocation decisions to manage their portfolios, which can increase their reliance on our analytics solutions. Similarly, for our public company clients, these cycles can drive demand for our Investor Relations solutions as company leaders seek shareholder activity insights in real time. As the global markets demonstrate sustained volatility, our market technology clients are focused on modernizing their market infrastructure to improve their agility and address client needs while also improving the resiliency and scalability of their markets. And within our anti-financial crime business, the disruption caused by the banking crisis has caused clients to move deposits at unprecedented rates. Because of our cloud-based consortium data models, our fraud and AML solutions are instrumental in helping banks monitor payments and behavioral changes. These patterns underscore how our diverse platform of mission-critical solutions allows us to maintain our competitive strength through dynamic periods of uncertainty like we've experienced during the quarter. With our continued client engagement, coupled with the long-term investments we're making in our future, we remain confident in our medium-term revenue growth outlook for our Solutions businesses. And with that, I will now turn it over to Ann to review the financial details.

Thank you, Adena, and good morning, everyone. I also want to extend a warm welcome to Ato Garrett as Nasdaq's Investor Relations Officer. 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 2023 performance beginning on slide 10 of the presentation. The 2% increase in reported net revenue of $914 million is the net result of organic growth of 4%, including a 5% organic increase in the Solutions businesses and a 3% organic increase in Trading Services, partially offset by a 2% net negative impact from changes in FX rates and acquisitions and divestitures. Moving to operating profit and margins. Non-GAAP operating income increased 3%, while the non-GAAP operating margin of 52% was unchanged from the prior year period. Non-GAAP net income attributable to Nasdaq was $339 million, or $0.69 per diluted share, compared to $329 million, or $0.66 per diluted share in the prior year period. Turning to slide 11. As Adena mentioned earlier, ARR totaled $2 billion, an increase of 7% from the prior year period, while annualized SaaS revenues totaled $729 million, an increase of 11%. I will now review quarterly division results on slides 12 through 14. Starting with the Market Platforms division, revenues increased $17 million, or 4%, with an organic increase of 6%. Trading Services organic growth totaled 3%, with the increase primarily due to higher U.S. cash equity capture rate and higher U.S. equity derivatives volumes and capture rates, partially offset by lower European cash equities revenues due to lower industry volumes and market share and lower U.S. tape plan revenues due to lower collections from underreported usage. In Marketplace Technology, we delivered 11% revenue growth, driven by strong results in both Trade Management Services and Market Technology, which benefited from testing revenue and a large project delivery during the quarter. ARR totaled $510 million, an increase of 8% compared to the prior year period. The division operating margin of 55% in the first quarter of 2023 reflects a one percentage point increase from the prior year period. Capital Access Platforms revenues decreased $3 million, or 1%, primarily due to the negative impact from changes in FX rates with organic revenue growth of $1 million. Growth in the division was mixed for the quarter, with a decline in Index revenue significantly impacting the overall growth of the division. Specifically, index revenue declined by 10% compared to the first quarter of 2022, primarily driven by an 11% decline in average AUM from near record levels last year. Transactional licensing revenues were flat as a 20% decline in trading volumes in futures contracts linked to the Nasdaq 100 Index was offset by higher pricing per contract and a favorable mix. Additionally, we saw net inflows over the trailing 12 months of $23 billion. In Listings, we maintained our leadership position with a 91% IPO win rate for US operating companies. The Nasdaq stock market welcomed seven of the ten largest US operating company IPOs by capital raise in the first quarter of 2023, including NEXTracker, which raised over $600 million in proceeds as well as the spinoff of GE Healthcare. In data, we have seen an increase in proprietary data revenues, driven largely by higher international demand. Workflow and Insights revenue increased 5% organically compared to the first quarter of 2022, reflecting growth in our ESG, IR, and Analytics businesses. ARR for Capital Access Platforms totaled $1.2 billion, an increase of 5% compared to the prior year period. The division operating margin was 54% in the first quarter of 2023, a decrease of one percentage point from the prior year period. Anti-Financial Crime revenue increased $12 million, or 17%, compared to the first quarter of 2022. Organic growth was 18% in the period or 16% when excluding the impact of the deferred revenue write-down of $1 million in the prior year period. The growth reflects healthy demand for fraud detection and anti-money laundering solutions as well as our SaaS-based surveillance solutions. Specifically, our fraud detection and AML solutions revenues grew 27% compared to the first quarter of 2022, excluding the impact of the deferred revenue write-down. Surveillance revenues grew modestly compared to the first quarter of 2022, as growth in subscription revenues was partially offset by lower professional fees. ARR for Anti-Financial Crime totaled $321 million, an increase of 15% compared to the prior year period. Signed ARR, which also includes ARR for new contracts signed but not yet commenced, totaled $354 million, an increase of 20% versus the prior year period. The Anti-Financial Crime division operating margin was 27% in the first quarter of 2023 versus 21% in the prior year period. Turning to page 15 to review both expenses and guidance. Non-GAAP operating expenses increased $8 million to $436 million. The increase primarily reflects a $20 million organic increase, partially offset by a $13 million decrease from the impact of changes in FX rates. The organic expense increase is primarily driven by higher compensation and benefits expense and computer operations and data expense as we invest in our businesses. The higher compensation largely reflects our 2022 investment in new employees to drive long-term growth. Compared to the fourth quarter of 2022, which featured higher sales activity to finish the year, expenses declined primarily due to lower marketing, travel, and professional services expense. During the quarter, we completed the first phase of a review of our real estate and facility capacity requirements due to our new and evolving work models. We reduced our footprint and recorded an impairment charge of $17 million related to our lease assets and related leasehold improvements. We are updating our 2023 non-GAAP operating expense guidance to a range of $1.78 billion to $1.84 billion. The midpoint of the expense guidance range is unchanged and still represents an increase of just over 5%, including 1% related to our digital asset strategy. The increase primarily reflects our continued investments to drive growth across ESG, anti-financial crime, and market modernization. The second quarter will reflect our annual merit adjustments and equity grants, and therefore, we expect expenses to increase about $20 million from the first quarter of 2023. Assuming stable performance and exchange rates, we currently expect 2023 expenses to be near the middle of the guidance range. Turning to Slide 16. Debt decreased by $290 million versus 4Q 2022 primarily due to a net paydown of $317 million of commercial paper, partially offset by a $26 million increase in Eurobond book values caused by a stronger euro. Our total debt to trailing 12 months non-GAAP EBITDA ratio ended the period at 2.6 times, down from 2.7 times in the fourth quarter of 2022, and there are no long-term debt maturities until 2026. With our strong balance sheet and cash flow generation, including $1.5 billion of free cash flow on a trailing 12-month basis, we continue to be well positioned to support growth in a variety of macroeconomic backdrops. During the first quarter of 2023, the company paid common stock dividends in the aggregate of $98 million and repurchased shares for $159 million. The repurchases complete our objective to offset employee share dilution for the year. As of March 31, 2023, there was an aggregate $491 million remaining under the Board authorized share repurchase program. Additionally, we are announcing today a 10% increase in the quarterly dividend to $0.22 per share. In closing today, Nasdaq's first quarter results reflect a continuation of the company's ability to consistently perform well across a wide range of operating environments. Thank you for your time, and I will turn it back over to the operator for Q&A.

Yes. Good morning, Adena. And good morning, Ann.

Hey, Rich. Thank you, Adena, for providing a lot of information on the business outlook in your prepared remarks. If I focus on the outlook regarding the sales cycle businesses, particularly in anti-financial crime and market infrastructure, you mentioned there was significant deposit movement in AFC. However, it seems that this movement primarily benefited the large banks. What is your take on that? Additionally, what is the outlook for the Tier 2 banks? I would also appreciate more insight into the sales cycle for market infrastructure. Has there been any impact from market volatility? Thank you, Rich. Regarding our AFC solutions, we are experiencing a continuation of a typical sales cycle. In the first quarter, we signed 42 new clients for our AFC business. We closely analyze our average time to close, client engagement, and our pipeline. Across AFC, Market Tech, and other areas of our Solutions segment, we observe a fairly stable environment. However, we are noticing longer sales cycles in our Workflow and Insights businesses, which encompass our IR, Governance, and Analytics sectors. In AFC, we have a robust pipeline of opportunities with both Tier 2 and Tier 1 banks. We were thrilled to sign our first Tier 1 bank in April and another Tier 2 bank in March. Our proof-of-concepts effectively demonstrate the value of our solutions to clients. For the Tier 2 client, we showcased our AML capabilities, while with the Tier 1 client, we focused on our fraud capabilities. Both clients acknowledged significant improvements in reducing false positives and enhancing their ability to identify genuine threats, whether related to fraud or AML. This strong return on investment makes it easier for banks to decide to purchase, irrespective of the economic climate, leading to sustained demand. Similarly, our Trade Surveillance business sees healthy demand, although last year’s first-quarter revenues inflated growth figures year-over-year. We are also targeting smaller markets with our trade surveillance, learning from Verafin's approach. Recently, we signed our first Tier 3 bank and brokerage firm for our surveillance solutions. In Market Tech, there is strong demand from established exchanges. We have observed shifts in demand characteristics for new markets since the onset of COVID, as they have not proven as fruitful as anticipated. In contrast, established exchanges show robust demand, especially in post-trade infrastructure and risk management tools. We've seen a healthy pipeline of opportunities and strong growth in Market Tech this quarter, with overall ARR increasing by 8% and the business itself growing by 11%. Demand remains solid.

Thank you. Thanks.

Hi. Good morning, Adena and Ann.

Hi.

Thanks for taking my question. I just wanted to touch on the AFC business as well. I mean, I know you talked about kind of still seeing a normal sales cycle in the AFC business from Verafin business. But just curious, longer term, again, just kind of given the banking situation in the US and just given that most of Verafin's current clients are SMB Banks, I'm just trying to get a better sense if you're changing kind of the longer-term focus from here? And meaning, is there going to be an increased focus on Tier 1s and Tier 2s, or is that still kind of a normal course of business? And then just kind of related to that, just in the quarter, revenues accelerated in the AFC business, but margins took a step back quarter-for-quarter, I'm just curious if there's any seasonal nuances. And maybe you can remind us of the interplay of margins between the surveillance and Verafin businesses? Thanks.

Sure. Well, I'll answer the first question and Ann will focus on the second one. With regard to the overall environment with the opening of the banks, I think, first of all, I would just say, we have about 2,500 banks and credit unions that rely on us today, but there are over 5,000 overall banks and credit unions across the US and Canada. So we still have lots of opportunity for growth and to find and land new clients. And so even if there are some unfortunate situations with banks as they're managing through a very big change in the operating environment, we do feel like we have plenty of opportunity to continue to grow and expand the business. And so far, we have an amazing team that supports the small to medium banks, and they're seeing a very normalized environment both in terms of new sales and in terms of renewals. So we're not seeing a disruption in the cadence of our business in that regard. And as I mentioned before, we had 39 new clients in the first quarter of last year and 42 this year. So we're continuing to show some really strong demand characteristics there. But the focus on Tier 1s and Tier 2s, there's a whole team just focused on that. So we've done a really nice job of segmenting the teams. One team supports the small to medium banks, one team supports the enterprise banks, which are the larger banks; and then we have a team, obviously, that supports surveillance, etc. And on the Tier 1 and Tier 2s, as I mentioned, the pipeline is really strong. So we have kind of an equal focus, I would say, on continuing to grow the SMBs while we focus on moving up market. And in terms of the margin quarter-over-quarter, I don't know if you have any comments, Ann?

Yes, sure. I mean if you look at the margins quarter-over-quarter, there's the timing of how expenses come in. I think the better sort of way to look at it is to look at the full year margins. If you look at full year 2021, we were roughly 28%, and full year 2022 is roughly 26%, and you can think about that as sort of how the margins will evolve over the full year for 2023 consistent with 2022.

Yes. And I think we've also said that we are really focused in this business on optimizing for growth. And so we want to make sure that as we're taking in more revenue, we're reinvesting that revenue to continue to really amplify the growth of the business. So the margin is wonderful, but it's also something we're really focused on making sure that we're investing in our growth there.

Okay. Great. Thank you so much.

Good morning, everyone. I’d like to follow up on Verafin. You mentioned the Tier 1 win, and Adena, you provided a lot of details about the scope. Could you elaborate on the potential for upselling in relation to the solution you're providing? How much of the capabilities are you selling? Could you provide some insight into the deal size and how it might expand over time? I understand you didn't disclose the specifics of the win, but historically, when a company like yours secures a significant win, it typically serves as a marketing opportunity. How do you think the conversations have changed now that you’ve secured a major bank, considering that they all communicate with one another? Could this potentially lead to an acceleration in growth? Thank you.

Thank you, Alex. It's interesting to see the potential here. We initially engaged in discussions focused on fraud detection, and they conducted a proof of concept with us. After witnessing the quality of the results, they expressed interest in exploring the entire platform. Instead of merely integrating our detection features into their system, they opted to replace all their fraud-related processes with the Verafin solution. This means we will be providing fraud detection for all their payment types, along with our workflow solutions, investigation tools, case management tools, and regulatory reporting tool. This has turned into a larger opportunity, although it currently only pertains to the US segment of the bank. Over time, we have the chance to expand internationally, and they are not yet utilizing any of our anti-money laundering capabilities. Thus, there is an opportunity for us to enhance our offerings as they broaden their approach to anti-financial crime. We need to demonstrate that we can maintain the high standards we’ve shown thus far and ensure a smooth implementation, which will be crucial. We're already discussing how they might consider a broader application of our services. This is what's exciting about working with larger banks, both Tier 1 and Tier 2, as their requirements are vast. We’re starting with modules that deliver clear return on investment, and as they see the broader platform, they begin to envision a greater utilization of our services. There’s a strong land-and-expand strategy we can pursue. Achieving our first win with a Tier 1 bank has been a significant milestone, as it allows us to establish credibility, encouraging other banks to view us as a proven solution. As you noted, they share information, which could expedite other discussions. However, I want to clarify that we won’t necessarily announce significant wins every quarter; our pipeline is developing, and we expect a more consistent rhythm moving forward. Finally, regarding the deal size, we don’t disclose specifics, but I want to remind everyone that it won’t appear in Q1 signed annual recurring revenue because it was finalized in April and will be reflected in Q2.

Very good. Thank you.

Good morning and thank you for my question. I would like to ask about AFC, but seeing there are many inquiries already, perhaps we can shift our focus to AI. Adena, you mentioned various benefits of AI and how Nasdaq is utilizing this technology in several areas. Could you please discuss any additional areas, apart from AFC and market modernization, where we could further apply AI? More importantly, do you think we need some regulations around AI to ensure accountability from users of this technology? Thank you.

It's been a significant topic of discussion for us. We've enjoyed exploring ChatGPT internally, and it's been a valuable learning experience. However, we are also serious about the potential to utilize AI throughout our operations. We are already using AI in our Anti-Financial Crime efforts, which is a well-established application. There are also substantial opportunities to enhance our surveillance capabilities through AI, leading to productive collaboration between Verafin and our surveillance team. Additionally, we're initiating AI use in our markets, particularly in managing our market infrastructure. We're implementing predictive AI tools for capacity planning and server management, which has greatly supported our infrastructure team. In our markets, we've developed an AI-driven order type called Dynamic Melo, Midpoint Extended Life Order, which is filed with the SEC. We're also leveraging machine learning for strike optimization in our options markets, which is currently in production and helps manage the growing number of strike prices. Furthermore, we're beginning to explore AI applications in our Capital Access Platforms business. This includes intelligent data scraping for our ESG initiatives to enhance the information available to corporations and provide insights regarding their ESG traits compared to their peers. We have a rich dataset across our insights and workflow tools that we aim to utilize for providing valuable insights to investors and corporations. We've already been employing natural language processing to assist our analysts in drafting client reports for quite some time. Regarding regulation, the next generation of AI is simply a technology—it's a tool without personality. The responsibility rests on users to apply it ethically. We recognize that there are risks associated with how these tools might be misused, as they are not limited by regulations. Therefore, it’s crucial for regulators to ensure that legitimate actors like Nasdaq have access to these advanced tools to safeguard the market and the financial system. We advocate for smart regulation that is proactive and encourages the appropriate use of technology, and we are already engaging with regulators and legislators on these matters.

Got it. Thank you very much.

Thank you.

Hey, good morning. Thanks for taking the question. Maybe just on the cloud migration and your AWS partnership. I was hoping maybe you can update us on the progress there, moving the markets to the cloud. It sounded like you're looking to move another options market by year-end. So, maybe you could just elaborate a bit on that, some of the milestones you're looking at over the next 12 to 24 months? Maybe you could talk about some of the lessons learned from the journey so far and what sort of benefits you're seeing to revenues and expenses? And if not much, so far, what do you anticipate in the coming years?

Sure. Thank you, Michael. The partnership with AWS is progressing exceptionally well, and we are very satisfied with our initial market, MRx, transitioning to the cloud. We observed a 10% improvement in latency when moving MRx to the cloud, which we can directly compare to our existing options market on our next-gen trading platform, Fusion, which is on-premises. We also have another options market on Fusion but hosted on AWS, and the latency improvement there is also 10%. We are very happy with these results. Both markets are showing enhanced market share due to a more deterministic trading experience on these platforms. We've seen growth in market share for those exchanges, closely linked to the effectiveness of our technology, which is very encouraging. We are now preparing to transition our third market onto Fusion and into the cloud and have plans over the next few years to continue this momentum. This gives us confidence that we are heading in the right direction, and our clients are actively engaged with us. We feel positive about the future. While we are not attributing specific revenue figures to this transition just yet, we recognize that this market modernization will create new opportunities, such as innovative order types and capabilities, along with a more scalable infrastructure. Over time, we will also eliminate the need for server refreshes, which will lead to significant cost savings as we keep migrating markets to the cloud.

Great. Thank you.

Thank you for taking my question. I'd like to focus on the outlook for recurring revenue growth as we progress through this year and into next year across three businesses. It seems that Workflow and Insights will continue to lag behind the medium-term target, which is in the high single-digit to low double-digit range, largely due to slower sales cycles. Conversely, Marketplace Tech appears to be performing well above that target, showing a low to mid single-digit year-over-year growth in the first quarter. Can you share your perspective on whether Marketplace Tech will continue to exceed that medium target, given the positive momentum from the first quarter? Additionally, regarding Verafin or Anti-Financial Crime, you are currently at the lower end of the medium-term target. Could you elaborate on how Tier 1 and Tier 2 implementations might impact revenue this year, along with other new business developments in that segment, and whether you expect to reach the medium-term growth rate target of 18% to 23% this year?

Thank you, Brian. As you know, we don't provide specific in-year guidance, but I can offer some insights. In the Workflow and Insights business, we're experiencing a mixed environment with longer sales cycles. We're actively engaging with clients, but they face more hurdles in obtaining approvals. This is particularly true in our governance area, where there are fewer IPOs, which is affecting growth in that segment. However, we are managing our pipeline and staying engaged, and we remain hopeful that as market conditions improve, particularly in the IPO space, we will see more opportunities and shorter sales cycles. So while we are optimistic, we must acknowledge that the current environment is different and we're adjusting accordingly. Regarding Marketplace Tech, we're pleased with the growth we've shown in the first quarter. There are two key developments in this business that are creating opportunities. We achieved 8% overall ARR growth in Market Platforms, mainly reflecting Marketplace Tech, while the business overall grew by 11%. The difference comes primarily from testing revenue in our Trade Management Solutions and a delivery fee in our Market Tech business. This context should help you think about the rest of the year. Lastly, concerning AFC, each quarter may yield different results, but we are confident in our growth prospects. Moving upmarket provides us with a larger total addressable market, along with higher contract values, which gives us a solid chance to demonstrate strong growth moving forward.

That’s great color. Thank you.

Hi, good morning. You've delevered significantly, now have a fair amount of balance sheet flexibility. And just given that, I'm just wondering if you could provide an update on M&A? I guess, broadly speaking, it seems to be challenging to get deals announced still given the macro volatility. But I guess are you starting to see seller expectations come in or normalize at all, or do you feel the environment is turning more constructive to getting deals done versus where we were in the second half of last year? And then just any color you can provide on certain segments of the business where you're seeing the most interesting M&A opportunities right now?

I'll begin with the last question. In general, our focus is primarily on organic growth, which has led to strong performance across the business. When considering ways to expand, we concentrate on three key themes: market modernization, where we aim to provide advanced technology to exchanges, banks, and brokers to enhance their activity in capital markets; expanding our ESG capabilities to assist corporates and investors in managing the ESG landscape; and anti-financial crime, an area where we see significant growth opportunities. Regarding the M&A environment, I believe that high-quality assets will always command a premium, regardless of market conditions. We acknowledge this reality, and as the market adjusts to rising costs of capital, we are aligning our assessments of potential acquisition targets to reflect these higher costs. This may lead to tempered expectations. However, we maintain a strong balance sheet and have effectively managed our debt, resulting in solid cash flows, positioning us well to pursue M&A opportunities when compelling options arise.

Thanks, Adena.

Hey, guys. Adena, congrats on the Tier 1 bank signing, but actually, all my questions have been asked. So I think I'm good right now.

Okay. Great. Thanks, Craig.

Hi. Good morning, everybody. I was hoping we could talk maybe a little bit about pricing. We've seen obviously inflation for a persistent period of time now; expenses are rising across the board. And a number of your peers on the exchange side, but also on the data side have been trying to flex the pricing muscle where they can. So what are the opportunities on price that you see across the enterprise? Are there areas where you feel you're sort of below the market relative to the value proposition that you're providing to your clients, where you could increase pricing over the next, call it, 12 months to 18 months?

We take a long-term approach to managing the prices of our capabilities and solutions. We believe in this strategy, but we also have provisions in our contracts, especially with our non-regulated businesses, that allow us to raise prices in order to align with the current inflationary environment. We utilize this option, particularly focusing on service pricing adjustments at the end of the year for implementation at the start of the next year. You can see these changes already reflected in our financials for 2023. The situation is different in regulated businesses since we want to ensure we are compensated for our value, but we also need to navigate a regulatory process. We are making thoughtful decisions regarding pricing when we feel it reflects the value we provide, but we are cautious and not excessively aggressive as we prioritize long-term considerations over short-term gains.

I got you. Thanks.

Hi, Adena. Hi. And thanks for taking my question. I was wondering if we could just explore the Index business this quarter and just how to think about things going forward? And maybe you could give us a sense then of, I guess, what you're seeing in terms of flows across the different product lines, where the real opportunities lie? And I'm particularly interested in the franchise outside of the straight QQQs as well?

Thank you. We provide information on flows at an aggregate level. In the quarter, we had $6 billion in inflows from the end of the year through the end of the first quarter, and $23 billion in inflows year-over-year. We are seeing strong demand from investors for our Index products, including not just the QQQs but also other thematic indexes and our smart beta index franchise. Overall, we feel positive about client and investor interest. However, market dynamics have significantly impacted our revenue decline. We are actively creating and launching new products, focusing primarily on thematic indexes, which reflect innovative technologies and specific industry trends. Much of our new product development is concentrated in these areas. We are also dedicated to smart beta products, such as our Momentum Index franchise and other smart beta indexes, but currently, our main emphasis is on thematic indexes.

Okay. Great. Thank you.

Sure.

Hey, good morning. Just in regard to the crypto business. Did you see any impact from the recent banking crisis in terms of interest from potential customers? And thinking about the broader space, there are a number of players currently there and it seems to be some commoditization in terms of pricing. So, how does Nasdaq differentiate in terms of its offering in custody? And finally, is the launch still planned for this quarter? Thanks.

Thank you, Andrew. To address your last question first, regarding timing, we are focused on obtaining regulatory approval and are currently having productive discussions with the New York Department of Finance. We hope to secure that approval this quarter and aim to have our product ready by the end of the quarter. By May, we plan to begin user testing on our platform, and we should be able to present a complete demo in production, which will be beneficial for engaging potential clients. However, the launch will depend on whether we receive regulatory approval and if the product is ready, as well as ensuring we have the necessary client engagement to confidently grow the business. Therefore, the launch date is not fixed and depends on the readiness of all components. Regarding client engagement and interest in institutional investment, I believe Nasdaq has a significant opportunity as the regulatory landscape evolves in the crypto market. As regulators become more involved, we have the capacity to offer a fair, resilient, and highly scalable solution. Our crypto custody technology represents a notable advancement. We are utilizing MPC along with innovative techniques to create a continuously available yet highly secure wallet, moving away from the traditional hot-cold wallet framework. This should appeal to institutional users who prefer not to have substantial assets locked away for extended periods. We believe we possess a unique value proposition and are seeing strong engagement from clients. However, the environment is dynamic, so we are adjusting our expectations accordingly and being prudent in managing our expenses. Nonetheless, we are very excited about our offerings and look forward to the launch.

Great. Thanks.

This is June on behalf of Dan. Thanks for taking my question. I just wanted to quickly ask about ESG. Just given some of the slowdown in the ESG investment strategies, are you seeing any impact from that on the demand for ESG service at all?

No. Most of the services we provide in the ESG area right now are focused on corporates, and we continue to see strong engagement from them. We have an advisory practice that assists companies in developing their overall HD programs, ensuring they report effectively, and communicate with investors. We also help them maintain compliance with various taxonomies to receive credit for their initiatives, and the demand for these services remains robust. Additionally, we offer reporting tools that consolidate all relevant information, which we then map to different taxonomies and rating agencies. This area is also experiencing significant growth in client engagement. Corporates want to ensure they connect with investors appropriately. Overall, while ESG may experience fluctuations depending on the current environment, it represents a fundamental shift in how companies engage with investors and how investment decisions are made. The next generation of investors cares not only about returns but also about how those returns are generated. I believe this trend will continue, and we are very optimistic about our ability to engage clients in this space.

Helpful, thank you.

Sure.

Hi, thanks. Just wanted to squeeze a couple of follow-ups here since we went over time. So thanks for letting me begin. So two things. One is a quick one and I think it is for Ann, back on Financial Crime. I mean you've been giving the signed ARR metric, and we only have limited history, but obviously, I think you can use that to back into net sales, which I think were $16 million this quarter; it was $6 million a year ago, so almost triple. So I'm not sure how meaningful those numbers are. But it sounds like you signed less Verafin clients. Maybe it's a Tier 2, is bigger. But like just maybe help us a little bit understand the numbers. And then just bigger picture. You have answered some questions around the operating environment and what's out there. But the one thing you didn't touch upon is that, clearly, there's a sizable bulge bracket firm looking to go away. So, just wondering how you think about that exposure there because clearly, their client, Credit Suisse, across a ton of different businesses of yours. So just wondering how we should be thinking about that? Thanks.

On the ASC side, last year's first quarter was slower than usual, but we did acquire 39 new clients. This year, we have signed on 42 new clients, indicating an increase compared to last year. The annual recurring revenue from larger clients is also expected to be higher, which is beneficial. I cannot provide a detailed explanation of the shift from 6% to 16% at this moment, but generally, we are experiencing strong revenue growth as we engage with existing clients and attract new ones. Additionally, when renewing contracts, we do not impose annual increases but use the opportunity to upsell clients, creating an active environment this year. Regarding Credit Suisse, it will take some time to fully assess how the two organizations will merge and how this will affect our capital markets business. If trading moves away from Credit Suisse, those volumes will likely be absorbed by other firms. We must ensure we connect with those players to capture their business. As for our Anti-Financial Crime solutions, particularly our Surveillance Solutions, the future management of that contract will depend on how they reorganize. Currently, we do not have a clear view on that, and this represents our primary exposure to Credit Suisse at the moment.

Great. Yes.

Excellent. Thank you very much.

Okay. Great. Thank you.

Great. Well, thank you very much for your time today, and we look forward to continuing our discussions throughout the year on the progress that we aim to make against our strategic priorities. And thanks a lot for your questions. Talk to you later. Have a great day.